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Estate Planning for Incorporated Physicians

Important Notice: Some of the content on this page may no longer be current due to proposals announced by the federal Department of Finance on December 13, 2017, to restrict income sprinkling and to the federal budget delivered on February 27, 2018. MD Financial Management is monitoring the proposals and budget details, and will update content in due course.

To learn how the 2018 federal budget may affect you, please read MD’s budget summary. If you have any questions about how you or your financial plan may be affected, please contact your MD Advisor.

When you set up your corporation, you knew what you hoped to achieve—higher savings, lower taxes and more investment options. Now you need to make sure your estate plan minimizes the impact of taxes on your estate.

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—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. (In Quebec a liquidator plays this role.) 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:

Appoint a professional executor or co-executor

Administering an estate with a corporation or holding company requires knowledge of, and an understanding of the interplay between, corporate and personal income tax issues. You'll want a carefully thought out estate plan, a well-drafted will and an experienced executor.

Your MD Advisor can refer you to an MD Private Trust Estate and Trust Advisor. They are experts in dealing with physician incorporation. 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.

Use your corporate surplus to purchase a permanent life insurance policy

A corporate-owned permanent life insurance policy can help you mitigate income tax obligations and maximize the wealth-building potential of your assets because investment earnings within the policy are tax sheltered.

Talk to your MD Advisor today about a referral to an MD Insurance Consultant, who can show you how a permanent life insurance policy could work for you.

The information contained in this document is not intended to offer foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The MD ExO® service provides financial products and guidance to clients, delivered through the MD Group of Companies (MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited). For a detailed list of these companies, visit MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. MD Financial Management Inc. is owned by the Canadian Medical Association.

Insurance products are distributed by MD Insurance Agency Limited, a CMA company. All life-licensed MD employees have life licences with MD Insurance Agency Limited, a CMA company.

Estate and trust services are offered through MD Private Trust Company, a CMA company.

In the province of Quebec, notarial wills do not require probate, whereas all other wills do require probate which are subject to a fixed application fee. All references to probate and probate tax in this document should be read accordingly.