When you set up your corporation, you knew what you hoped to achieve - higher savings, lower taxes, more investment options - now you need to make sure your estate plan doesn't make the Canada Revenue Agency the chief beneficiary of those achievements.
Estates involving a corporation or holding company are more complex to administer, and could be taxed more highly due to the potential for double taxation. One level of tax occurs upon your death when you are deemed to have disposed of your corporation's shares at their fair market value, thereby potentially resulting in a taxable capital gain to be reported on your final personal income tax return. A second level of tax could occur when the corporation pays dividends to your estate (in its capacity as shareholder) or if your executor decides to wind-up the corporation. Appropriate estate planning can help mitigate the impact of this potential double tax dilemma and can help you maximize the after-tax value of your estate.
Here are two examples of how this could be achieved:
Administering an estate with a corporation or holding company requires knowledge of business, corporate and income tax issues. You'll want a carefully thought out estate plan, a well drafted Will and you'll need an experienced executor. Your MD advisor can refer you to an MD Private Trust Estate and Trust consultant. They will work with you to:
- Identify your estate planning goals and review your current Will.
- Explore and implement strategies to maximize the after tax value of your estate.
- Recommend updates to your Will and executor(s), if necessary.
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As noted in the investment section, a corporate owned universal life insurance policy is purchased with more cost-effective corporate after-tax dollars. The key benefits are:
- Investment earnings within the policy are tax sheltered.
- The death benefit is paid tax-free to your corporation.
- The death benefit less the adjusted cost basis can be paid tax-free to your estate or your heirs (in their capacity as shareholders) through your corporation's Capital Dividend Account.
The net result of this is an increase in the after-tax value of your estate. An additional benefit is that the proceeds of the policy are not subject to probate, so they are available to your heirs before other assets. This can be beneficial if some obligations, such as final taxes, become due before the estate is settled. Talk to your MD advisor today about a referral to an MD Insurance Consultant, who can discuss this and other strategies for an MD Life Plan.
MD Life Plan is distributed through MD Insurance Agency Limited. MD Life Plan is underwritten by MD Life Insurance Company. Both are subsidiaries of the Canadian Medical Association. All MD Management Financial Consultants and MD Insurance Consultants have life licenses with MD Insurance Agency Limited.
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