The Corporate Estate Transfer
If you are the owner of a successful company it is likely that you have retained profits or surplus cash in your corporation. If this is the case, chances are also good that this invested surplus is exposed to a high rate of corporate income tax. If this describes your company then you may be a candidate for the Corporate Estate Transfer. This strategy provides tax sheltered growth as well as maximizing the estate value of your company upon your death.
What is a Corporate Estate Transfer?
The Corporate Estate Transfer is an arrangement in which the company purchases a tax exempt life insurance policy on the life of the shareholder using corporate funds that are not needed for immediate business purposes. In doing so, the transferred surplus grows tax-deferred while the death benefit of the life insurance policy increases the value to the estate when the shareholder dies.
The steps involved with the Corporate Estate Transfer are as follows:
Who is it for?
The Corporate Estate Transfer concept would be of interest in the following circumstances:
What makes this work?
John is an owner/manager of a successful company in Vancouver. He is a 45 year old non-smoker, married with 2 young children. His company has been doing well for a number of years now and his corporate earnings are consistently more than is required for business operations. He estimates that the company can commit $30,000 per year to a Corporate Estate Transfer. John decides the insurance policy to be used for this purpose is a 20 Pay Participating Whole Life policy. Annual deposits are made for 20 years and the policy becomes paid up at that point.
The following chart compares the results between the Corporate Estate Transfer and the company simply investing the $30,000 annual surplus cash flow at a projected rate of 5% before tax.
The cash accumulation figures shown are pre-tax for the Corporate Estate Transfer and after tax for the alternative investment. The reason for this is strategies exist that can provide a tax free result for the Corporate Estate Transfer.
|Alternative Corporate Investment|
|$ 65,177||$ 776,334||5||50||$ 164,205||$ 115,908|
By taking advantage of the Corporate Estate Transfer concept John is able to move corporate investment dollars from a tax-exposed environment to a tax-sheltered environment. This increases the amount that will be received by John’s heirs and beneficiaries when he dies.
I would be happy to help you determine if the Corporate Estate Transfer is right for you. As always, please feel free to share this article with friends and associates you think might find it of interest.
The Corporate Estate Transfer is illustrated using Canada Life’s Estate Achiever 20 pay Whole Life policy at current dividend scale. The face amount is $607,560 with an annual premium of $30,000, including the maximum additional deposit option. The Net Estate Value shown assumes all applicable dividend taxes are paid and all RDTOH is utilized. The Net Estate Value from the Corporate Estate Transfer assumes the proceeds received tax free by the company is credited (less ACB of the policy) to the Capital Dividend Account. Capital Dividends are received tax free by the estate of the deceased shareholder or to surviving shareholders.
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