How to get your corporation's money to your children with the least tax
Three tools do most of the work, usually together: an estate freeze that fixes the tax owed at death and moves future growth to your children, a corporate-owned life insurance policy whose death benefit pays that tax and comes out of the corporation tax-free through the capital dividend account, and a holding company that keeps the money in the corporate family until it is needed. Your notary or lawyer drafts the freeze and the will, your accountant computes the tax, and the insurance funds it.
Published: · Last Reviewed: · Author: Anton Ivanov · 3 min read
What is owed at death
At death you are deemed to sell everything you own at fair market value, including the shares of your corporation. Half of the gain is taxable. At Québec's 2026 top rate that is about 26.65% of the gain, so shares that grew from almost nothing to $5 million leave a tax bill of about $1.33 million, payable by the estate.
The money to pay it usually sits inside the corporation. Taking it out as ordinary dividends is taxed again, at up to 48.70% for non-eligible dividends in Québec in 2026. Your accountant and lawyer can use post-mortem steps after death to reduce this second layer, but they work best when the structure was prepared during your lifetime.
The estate freeze fixes the bill
In an estate freeze, you exchange your common shares for preferred shares worth today's value, and new common shares go to your children or a family trust. The tax at your death is then based on today's value. All the growth from here is taxed in the next generation's hands, usually decades later.
A freeze is drafted by your notary or lawyer and valued by your accountant. Québec's civil law and notarial rules shape the wording, so it belongs with professionals who do this regularly.
Insurance pays the bill, through the capital dividend account
Once the tax is known, it can be funded. A life insurance policy owned by the corporation pays the death benefit to the corporation tax-free. The benefit, less the policy's adjusted cost basis, is added to the capital dividend account, and that amount can be paid to your heirs as a tax-free capital dividend.
In the paying pennies case study, a 74-year-old founder's estate faces $300,000 of tax after a freeze. A $350,000 universal life policy owned by his holding company costs about $231,000 in total premiums if he dies at 85 and about $327,000 at 90. Paying the same $300,000 from retained earnings as non-eligible dividends would take about $585,000 of corporate money at Québec's 2026 top rate. Illustrative only; premiums depend on age, health and the insurer.
The holding company keeps it in the family
A holding company lets surplus leave the operating business without personal tax, protects it from the business's creditors, and is a natural owner for the policy. It also gives the freeze and the will a clear structure to work with.
The order of steps
Your accountant values the shares and estimates the tax at death today and in 10, 20 and 30 years.
Your notary or lawyer, with your accountant, looks at a freeze and a holding company, and updates the will and shareholder agreement.
The insurance advisor sizes a policy to the frozen tax, compares insurers and shows guaranteed and projected values side by side.
The policy is placed while you are insurable, owned by the right corporation.
Every year, the numbers are checked against the corporation's value and your family's plans.
What tax is owed on my corporation's shares when I die?
You are deemed to sell your shares at their fair market value just before death. Half of the gain is taxable; at Québec's 2026 top rate that is about 26.65% of the gain. Without further steps, the same value can be taxed again when the corporation pays the money out to your estate.
Does an estate freeze reduce the tax?
It caps it. You exchange your common shares for preferred shares fixed at today's value, and new common shares go to your children or a family trust. Future growth is taxed in their hands, not in your estate.
Why use life insurance to pay the tax?
Because it is usually the cheapest money available at death. The corporation receives the death benefit tax-free, and the amount above the policy's adjusted cost basis can be paid to your heirs as a tax-free capital dividend. Paying the same tax from retained earnings as taxable dividends takes far more corporate money.
Who does what?
Your notary or lawyer drafts the freeze, the shareholder agreement and the will. Your accountant values the shares, computes the tax and handles the filings, including any post-mortem steps. The insurance advisor sizes and places the policy that funds the tax.
When should I start?
While you are insurable and before the corporation's value grows much further. A freeze done earlier fixes a lower value, and insurance costs less the younger and healthier you are.
Next steps
Want to see what your estate would owe today and how it could be funded? Book a 30-minute call. I don't charge for advice, then or later.
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Financial Security Advisor · Mutual Fund Dealing Representative · Group Insurance & Annuity Plans Advisor
Advisor since 2004 and independent since 2008, focused on corporate investing and corporate-owned life insurance for incorporated business owners in Québec and Ontario. Mutual funds distributed through WhiteHaven Securities Inc.; insurance through iAssure Inc.
Disclosure. I am a licensed Financial Security Advisor, Mutual Fund Representative, and Group Insurance & Annuity Plans Advisor. I am not a lawyer, tax lawyer, or accountant. I discuss taxes only as they relate to specific insurance, investment, and estate strategies; I do not provide general tax optimization or comprehensive wealth strategy services. Content is educational only. Mutual funds offered through WhiteHaven Securities Inc. Insurance products offered through iAssure Inc. Coordinate decisions with your CPA, notary, or lawyer. See Disclaimer and Privacy.
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This content is for information and education only. It explains general concepts that may apply to incorporated business owners, but it is not personalized tax, legal, or investment advice.
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