Corporate Estate Transfer
If you are the owner of a corporation or a majority shareholder in a Canadian corporation with taxable investments, the Corporate Estate Transfer can help you reduce the impact of the “double tax trap” of transferring your shares from your corporation to your estate by reallocating corporate surplus from taxable investments into a corporate-owned participating whole life insurance policy instead.
As a corporate owner, you must pay a capital gains tax on any value of shares you have within your corporation. This is the first tax trap. When the executor of your will then makes payments from the corporation to the beneficiary of your estate, a dividend tax is payable. This is the second tax trap.
A corporate estate transfer allows you to reduce the Fair Market Value (FMV) of the corporation while increasing your estate value. The value of your shares as a corporate owner is based on the FMV of the corporation’s assets. Reallocating corporate surplus from taxable investments into a corporate-owned participating whole life insurance policy reduces the FMV because only the policy’s cash surrender value is included in the calculation, creating a larger estate and possibly reducing the capital gains tax payable.