Principal Issues:
Tax liability arising from ;
1. (a) The transfer of a life insurance policy on the life of the policyholder's grandchild to a parent of the grandchild, and
(b) The subsequent transfer of the policy to the grandchild when he/she attains a certain age.
2. (a) The transfer of a life insurance policy on the life of the policyholder's grandchild to an aunt or uncle of the grandchild, and
(b) The subsequent transfer of the policy to the grandchild when he/she attains a certain age.
3. (a) The transfer of a life insurance policy on the life of the policyholder's grandchild to a "trust" in which the grandchild is the beneficiary, and
(b) The subsequent transfer of the policy to the grandchild when he/she attains a certain age.
Position:
1. (a) No tax liability,
(b) No tax liability.
2. (a) If aunt or uncle is a "child" of the policyholder, then no tax liability,
(b) Generally, would result in a tax liability to the aunt or uncle.
3. (a) Tax liability to the policyholder, since trust not considered a "child" of the policyholder,
(b) Generally, no tax liability to either the trust or beneficiary.
Reasons:
S.148(8) allows the transfer of a life insurance policy to a "child" of the policyholder for deemed proceeds of disposition equal to the adjusted cost basis of the policy; 1.(a), 1.(b) and 2.(a).
S.148(7) allows for the transfer of a life insurance policy, for no consideration, to a non arm's length person for a deemed proceeds of disposition equal to the cash surrender value of the policy; 2.(b) and 3.(a).
S.107(2) allows for the transfer of property (life insurance policy) to a beneficiary of the trust, in satisfaction of all or part of their interest in the property of the trust, for deemed proceeds of disposition equal to the cost amount (to the trust) of the property; 3.(b)
