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Succession Planning

Corporate Estate Transfer

As your successful business matures, your family corporation accumulates funds that are surplus to the working capital needs of the business. The income generated from the investment of these funds is taxed at the highest corporate tax rate—roughly 50%.

Consider an alternative strategy using an exempt life insurance policy to accumulate income in a tax-advantaged environment, avoiding that high corporate tax and enhancing your estate value.

During the lifetime of the insured shareholder, income accumulates within the policy without taxation. On the death of the shareholder, the corporation receives the death benefit tax-free. This payment increases the capital dividend account (CDA) of the corporation and the private company may distribute a dividend from the CDA tax-free to the surviving shareholders or the shareholder's estate.

Implementing the Corporate Estate Transfer strategy may initially decrease the fair market value of the corporation's shares because the cash value of the policy may be less than the original passive asset portfolio. As a result, the shareholders may maximize their estate value by reducing the capital gains exposure.

The Corporate Estate Transfer Strategy:

• Allows the corporation to retain control of their surplus capital in a tax-advantaged insurance program
• Can yield a higher transfer amount than traditional taxable investments
• Provides an immediate enhancement to the assets available for transfer to surviving shareholders
• Offers tax-advantaged accumulation while living and a credit to the CDA upon death
• Maximizes the estate value at death by reducing capital gains exposure