Life is an uncertain road and for your client, circumstances may change where they one day need to transfer ownership of their personally owned life insurance. It does happen and in many cases, the transfer results in a taxable disposition of the life insurance. However, there are some tax-deferred “rollovers” available for transfers to spouses and children.
As is the case with other types of property, there is a rollover for a life insurance policy when it is transferred from one spouse to the other, either while alive or on death. Unlike other asset transfers though, there is no rollover to a spousal trust. The rollover also applies if the life insurance is transferred to a former spouse in a marriage settlement during the transferor’s lifetime.
Similar rules exist for the transfer of life insurance to children but there are a few more requirements! The child must be the only life insured and there is no rollover to a trust, even if the child is the only beneficiary. Having the ability to transfer life insurance that is free of tax to a child is a great way for your clients to help their children plan for their very own futures.
Please read Transferring Life Insurance – What You Need to Know! for more information on the tax rules associated with transferring life insurance in different situations, and remember to share the client-friendly version of this article with your clients.
Additionally, you can visit our Professional Resource Centre to read the full article Family Divide in Forum magazine by PPI’s Vice President of Planning Services, Glenn Stephens (Advisor login required).