Prepared report
Estate Freeze Funding Analysis
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In one page
Recommendation in brief
The situation
This analysis starts from the figures below. Every number in the report follows from them, so if any of these is wrong, the conclusion moves with it.
| Corporation | |
|---|---|
| Value frozen into the preferred shares | |
| Adjusted cost base of the preferred shares | |
| Preferred shares redeemed each year for income | |
| Province of residence | |
| Lives insured | |
| Assumed age at the last death | |
| Years until then |
Background and objectives
The tax bill at the last death
An estate freeze fixes the value of the preferred shares. At the last death the shares are deemed sold at that value, and the gain is taxed on the final return whether or not anything is actually sold. That is the bill this report is about.
| Frozen value today | |
|---|---|
| Less shares redeemed over years | |
| Value still held at death | |
| Less adjusted cost base | |
| Capital gain | |
| Taxable at the inclusion rate | |
| Tax at the top marginal rate of |
The estate then has to get that cash out of the corporation. In the plain case, a taxable dividend does it, which adds a second layer of tax. The funding paths below are measured on cash actually in the estate's hands, after both layers, so they already account for it. A subsection 164(6) loss carryback or a pipeline can remove one of the two layers; that is tax work for the CPA and is noted on the last page.
Four ways the estate could pay it
Each path is measured on the same bill and the same death age. The question is not whether the tax gets paid. It does. The question is what it costs to have the money ready.
| Path | What it costs | Total | Per year |
|---|---|---|---|
| Sell part of the company | Business value given up in a forced sale at a discount | n/a | |
| Borrow at death | Dividends paid out to service a -year loan at | ||
| Set money aside in a corporate portfolio | Contributions over years at a year, after corporate tax | ||
| Insure the liability | Premiums on a policy paying at death |
Selling part of the company
Borrowing against it
Setting money aside in a corporate portfolio
Insuring the liability
A side effect of the portfolio path
Policy against portfolio, year by year
The policy, sized to the bill
The corporation owns and pays for the policy and is its beneficiary. At death the benefit arrives tax-free in the corporation. The part above the policy's adjusted cost base is credited to the capital dividend account and can be paid to the estate tax-free. The remainder goes out as a taxable dividend. The face amount is solved so that what reaches the estate after both steps equals the tax bill.
| Product modelled | |
|---|---|
| Death benefit required | |
| Policy adjusted cost base at the assumed death | |
| Capital dividend account credit | |
| Paid as a taxable dividend | |
| Net to the estate | |
| Estimated annual premium (industry grid) | |
| Premiums to the assumed death age |
Underwriting
The premium above is an industry estimate for a standard risk. The quotes below are for the actual lives, so health comes first.
| Health and lifestyle disclosed | |
|---|---|
| Expected underwriting class | |
| Effect on the quotes |
Insurers' quotes compared
Quotes obtained for the lives and the death benefit above, as of the report date. Column titles can be changed to the ages that matter for this client.
| Insurer and product | Annual premium | Premiums paid to age 85 | Death benefit at 85 | Cash value at 75 | Cash value at 85 |
|---|---|---|---|---|---|
Reading the quotes
Guarantees compared
This is where the products differ most. A lower premium with a weaker guarantee is a different product, not a better price.
| Feature | Insurer A | Insurer B | Insurer C |
|---|---|---|---|
| Premium guaranteed for life | |||
| Death benefit guaranteed | |||
| Cash values guaranteed | |||
| Portion that depends on the dividend scale | |||
| Premium offset or paid-up option | |||
| Rating applied to the quote | |||
| Conversion or exchange rights |
What the guarantees mean for this client
Recommendation
Next steps
For the CPA and tax lawyer
Every assumption behind the numbers, so they can be challenged. Tax figures should be confirmed against the client's actual returns and the freeze documents.
Rates and assumptions used
| Capital gains inclusion rate | |
|---|---|
| Top combined personal marginal rate | |
| Personal rate on non-eligible dividends (the wind-up dividend) | |
| Corporate rate on investment income | |
| Refundable portion of that rate (RDTOH) | |
| Portfolio return assumed (interest, dividends, realized, unrealized) | |
| Loan rate and amortization on the borrow path | |
| Forced-sale discount on the sell path | |
| Policy premium source | Industry rate grid, September 2026; replaced by the quotes above |
| Policy ACB curve source | Net cost of pure insurance from carrier illustrations; the CDA credit is death benefit less ACB |
| Tax rates over the horizon | Today's rates held constant to the assumed death age |
To verify
- The frozen value and the ACB of the preferred shares, from the freeze documents and the valuation.
- Whether preferred shares are being redeemed, on what schedule, and whether that changes the residual value used here.
- Any holdco above the operating company, any trust holding the growth shares, and any shareholders' agreement that forces a buy-sell at death.
- The state of the capital dividend account today, and any other transactions expected to draw on it.
- Whether a subsection 164(6) loss carryback or a pipeline is intended at death, which changes the second layer of tax and generally strengthens the insurance case.
- Whether the corporation will still exist at the last death with the surplus to pay a wind-up dividend.
What this analysis leaves out
It models one freeze on one corporation. It ignores probate, US estate tax exposure, and GRIP created by the portfolio's eligible dividends, which would let part of the wind-up go out at a lower personal rate on the portfolio path. It assumes the policy stays in force, which means the premiums are actually paid. And it says nothing about whether the freeze was the right move in the first place.