Here is a Great Tax Shelter & Investment Opportunity

Published by on

Who is it for?

It is for people owning a corporation with significant cash which will likely be passed to the next generation. In other words, people who don’t need life insurance. I have a well-to-do client named “Bill”. When I started working with Bill and his wife Barb, they commented that every time they had sat down with a financial advisor over the years and the conversation invariably started or ended with the phrase, “You should look at more life insurance”. I had to smile at that.  Bill has been self-funding his successful business operation for years and has done a great job with his accountants and lawyers to insure that his tax liabilities are minimized.  They owned a joint last-to-die insurance contract that is a cost efficient way to pay terminal taxes and after a review, I agreed it was adequate.

What Bill was looking for a way to secure the money in a low risk investment so that it would be there for his family. As he pointed out he could make great money in his business, but the business was not without risk. This was his “safe” money.

Bill and his wife Barb had accumulated several hundred thousand dollars in a holding company. The taxation on these investments was at the highest tax rate. He certainly did not need to increase his income. That was when I pointed out to him that well-to-do people do not buy life insurance because they need it, but a lot of insurance is sold because they want it. In fact, insurance is one of the last great tax shelters available today.

Why does it work?

Insurance death benefits are received tax free. Deposits paid into the contract are converted to a death benefit. In the case of a corporation, the death benefit is received by the corporation tax free along with a credit to the Capital Dividend Account (CDA). The CDA credit equals the death benefit less the adjusted cost base (ACB) of the contract. This CDA credit allows the money to be paid to the shareholders' tax free. The ACB may be as low as zero depending on how the contract was structured and if so, 100% of the death benefit passes without tax.


Holding companies are typically wound up at death in order to avoid double taxation. The corporate Estate Bond provides an opportunity to “avoid” taxation.  Taxes only apply to investments inside the corporation that are held outside the Estate Bond. The Estate Bond successfully converts corporate dollars to tax free dollars in an efficient manner. The decision to purchase is made based on individual circumstances. In fact it is simply an investment decision. We compare the net benefit of the contract to the net benefit of alternative investment options. The Corporate Estate Bond can be structured with some variables in the payout or it maybe structured for a maximum guaranteed result. The only variable is then the date of death.  In purchasing a contract, age is generally not an issue; health is a factor. Equivalent investment returns will vary, but in Bill’s case (buying at age 65), the investment alternative would have had to guarantee 8.2% per year for 21 years; Bill's life expectancy. If the Corporate
Estate Bond seems like it may fit your circumstance, I encourage you to discuss it with your accountant and/or feel free to ask me for more information.  

You be the judge.