APPENDIX B

ADVANCED SALES MEMO

Designating a beneficiary means that you have left written instructions with the financial institution holding your RRSP or RRIF as to who will get the account on your death. This is an alternative to leaving instructions in your will for the disposition of your RRSP or RRIF on your death.

Until recently, Quebec law has not allowed for the direct designation of a beneficiary to non-insurance RRSP's or RRIFs. Quebec clients would leave instructions for the disposition of these assets on death in their will.

The new Civil Code, which came into effect on January 1st, 1994, recognizes the designation of a beneficiary to certain trusteed retirement savings plans in limited circumstances. Changes to our plan documentation and approval of same on behalf of Revenue Quebec and Revenue Canada were required in order to enable Investors to accept these designations in Quebec. These changes have been made and the necessary approvals have been received for RRSPs and RRIFs distributed by Investors. As a result, Quebec clients who purchase RRSPs and RRIFs from Investors will now be able to designate beneficiaries to these accounts. Those Quebec clients with existing RRSPs and RRIFs may also designate a beneficiary by completing a Change of Beneficiary form. In addition, Quebec clients may still choose to designate a beneficiary to their RRSP or RRIF in their will.

What is the significance of this change to you and your clients?

1. Avoiding Probate:

The main reasons for making a direct designation of beneficiary are to obtain the account proceeds without waiting for probate and to avoid the payment of probate fees on the value of the account. This is because an account with a direct designation of beneficiary does not usually get distributed through the will of the deceased and does not form part of the assets of the deceased for probate purposes. As a result, clients who are resident in provinces with high probate fees will often make a direct designation of beneficiary in order to avoid probate fees on the value of their RRSP or RRIF on death.

In Quebec, the majority of wills are in notarial form and do not need to be probated. The other forms of wills in Quebec (wills made in the presence of witnesses and holograph wills) do require probate, but probate costs in Quebec are quite inexpensive ( the current charge is a flat fee of $64) in comparison to the rest of Canada. As a result, there is less financial incentive to a Quebec resident to make a direct designation of beneficiary to an account. However, we understand that the time for settlement of Quebec accounts may be slightly reduced if there is a direct designation of beneficiary, so Quebec clients may prefer to make a direct designation of beneficiary for this reason.

2. Income Taxes:

It is important to remember that a direct designation of beneficiary does not need to be made in order to take advantage of the "refund of premium" rules, which allow the rollover of an RRSP on the death of the owner in certain circumstances, as long as the recipient is entitled to the RRSP under the terms of the deceased's will. Also, the income tax options available to a surviving spouse who is designated as beneficiary on death of the owner of a RRIF will be available whether the spouse is designated as beneficiary directly under the plan or by will. Note that the tax consequences will depend on who is entitled to receive your RRSP or RRIF on your death, either by direct designation or through your will. The tax treatment of RRSP and RRIF proceeds on death is outlined in detail in questions 9 through 20 of Section 3 of the Estate Planning Guide, as well as in Chapter 1 of the Tax Library. In particular, you should note the strategy of leaving $20,000 to $30,000 of RRSP assets to the estate, to have the option of taking that amount into the final tax return of the deceased. This will be advantageous if the deceased has personal credits that are not offset by other income in the year of death. This strategy is discussed at pages 38, 39 and 40 of the French version of Chapter 1 of the Tax Library and at pages 36, 37 and 38 of the English version of Chapter 1 of the Tax Library.

The changes allowing a Quebec resident to designate a beneficiary to their Investors RRSPs and RRIFs are not yet effective with respect to LIRAs and LRIFs, as the necessary changes to the plan documentation for these products have not yet been approved by the regulatory authorities. Further information will be provided to the Quebec sales force as soon as it is available on LIRAs and LRIFs.

As before, Quebec residents can make a direct designation of beneficiary to their Registered Pension Plans, Deferred Profit Sharing Plans, and any life insurance policies or annuities issued by a life insurance company.

The rules regarding designation of beneficiaries are dealt with in Section 3 of the Estate Planning Guide, which is provided to all Investors representatives on their six-month anniversary with the company. Please note that the Estate Planning Guide was revised in December, 1994 to add information specifically applicable to Quebec, noting recent changes to the Civil Code and other areas in which the legislation in Quebec affects estate planning. It is our intention to continually update the Estate Planning Guide so that it is relevant to all Sales Representatives. We encourage you to use the guide and to provide us with any suggestions for further questions that should be covered. Your questions and comments can be directed to my attention, Advanced Sales Department #108, phone number (204) 956-8121; fax number (204) 943-0021.

Please post this memo for the information of the Sales Representatives and staff in your office.

The purpose of this bulletin is to inform you of current developments, not to provide legal advice. Clients should consult their professional advisors for advice based on their specific circumstances.

Debra A. Ammeter
Director, Taxation and Financial Planning Strategy Support
Advanced Sales #108