Principal Issues: Does the assignment of an insurance policy or annuity to a funeral home qualify as eligible funeral arrangement?
Position: Question of Fact.
Reasons: If the assignment does not entitle the funeral home to the funds from the policy or annuity following the death, because the policy holder retains the right to name the beneficiary, then it is unclear how the arrangement can be said to be for the purpose of funding the funeral and would not be an eligible funeral arrangement. If the funeral home is entitled to the funds upon the death of the individual, the arrangement could be an eligible funeral arrangement.
XXXXXXXXXX 2003-004268
Annemarie Humenuk
May 20, 2004
Dear XXXXXXXXXX:
Re: Eligible Funeral Arrangements
This is in reply to your correspondence of August 21, 2003, addressed to Mr. Stephen Draude of the Saskatoon Tax Services Office.
You ask whether an eligible funeral arrangement is created when a funeral home accepts an assignment of insurance benefits from a policyholder in exchange for the promise to deliver funeral services upon the death of that individual. In this regard, you submitted sample documents used by an insurance company which purport to create such an arrangement.
The circumstances outlined in your letter relate to a specific fact situation. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, this Directorate does not comment on transactions involving specific taxpayers except by way of an advance income tax ruling in respect of proposed transactions. This Information Circular can be obtained from the Canada Revenue Agency ("CRA") website at www.ccra-adrc.gc.ca. When the situation involves a specific taxpayer and a completed transaction, the question should be directed to the appropriate Tax Services Office for their views, along with all relevant facts and documentation. However, we are prepared to offer the following general comments which may be of assistance.
An eligible funeral arrangement is defined in subsection 148.1(1) of the Act and must, among other things, be established and maintained by a person authorized under the laws of a province to provide funeral or cemetery services for the purpose of funding funeral or cemetery services for one or more individuals. Under an eligible funeral arrangement, an individual makes a contribution to the qualifying person for the purpose of funding funeral or cemetery services to be provided by that qualifying person for one or more individuals.
In the situation you describe, an individual makes an assignment of his or her rights as the certificate owner of the policy to the funeral home, but retains the right to name the beneficiary under the policy. Accordingly, as the benefits to be paid under the policy may be payable to someone other than the funeral home, it is unclear how such an arrangement can be said to have been made for the purpose of funding the funeral services of the individual. As a result, it is our view that such an arrangement would likely not qualify as an eligible funeral arrangement as defined in subsection 148.1(1).
Where a life insurance policy has been unconditionally assigned to a funeral home such that all benefits under the policy will be paid to the funeral home for the purpose of funding funeral or cemetery services to be provided to the assignor, it would appear that such an arrangement might qualify as an eligible funeral arrangement.
We trust that these comments will assist you in understanding the funeral home's role as custodian of an eligible funeral arrangement. However, as stated in paragraph 22 of Information Circular 70-6R5, the opinion expressed in this letter is not a ruling and consequently is not binding on the CRA in respect of any particular arrangement.
Theresa Murphy
Manager
Trust Section
International & Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
