Estate Freeze Funding Calculator

The preferred shares are treated as sold at fair market value immediately before death. Because the freeze fixed that value, the gain is knowable today.

This assumes the top marginal bracket, which is where an estate of this size generally lands, and it ignores any other income in the year of death. It also assumes no capital gains exemption is available against the preferred shares, which is usually the case after a freeze. Confirm the treatment of your own shares with your CPA.

Premiums come from rate grids built in September 2026 from rates read out of insurer software. Rates at five-year ages are measured; ages in between are interpolated.

Last-to-die pricing is derived from the single-life grid using an equivalent-age adjustment. For Term 100 it is fitted on two quoted couples from the same carrier, a man of 65 with a woman of 62 and a man of 70 with a woman of 60, which fixes both the level and how the discount narrows as the age gap widens. Whole life is anchored on the first couple only. Couples the same age, or far from those profiles, carry more error.

The corporation receives the death benefit free of income tax. Getting it out to the estate is the part that costs money. The death benefit less the policy's adjusted cost basis credits the capital dividend account and can be paid out as a tax-free capital dividend. The rest is a taxable dividend.

Adjusted cost basis is the premiums paid less the cumulative net cost of pure insurance. It climbs for roughly the first fifteen to twenty years, then grinds back toward zero as the mortality cost overtakes the premiums. This calculator derives it from that identity, anchored on illustrations at issue ages 45 and 65, rather than assuming a flat percentage. On a policy issued at 65 the adjusted cost basis can still be around a quarter of the death benefit at age 85, so treating the whole death benefit as tax-free would overstate the result materially.

A single after-tax rate of return would hide the whole argument, because inside a corporation the source of the return decides the tax. This models each component separately.

Interest is taxed at -- as it is earned, of which -- is refundable and sits in the refundable dividend tax on hand account until a taxable dividend is paid. Eligible portfolio dividends attract Part IV tax at --, fully refundable on the same basis. Half of a realized gain is taxed; the other half credits the capital dividend account, so the portfolio earns tax-free extraction room too. Unrealized growth is not taxed until the corporation sells the holdings to fund the payout at death.

The corporation is assumed to wind up at the last death, so the refundable tax is recovered against the wind-up dividend. Returns are assumed steady, which real markets are not. A portfolio that has to be sold in a poor year delivers less.

Passive income above $50,000 reduces the small business deduction by $5 of business limit for every $1 of excess, and eliminates it at $150,000. A portfolio creates that passive income. An insurance policy does not. For an operating company still claiming the deduction, this is a recurring cost of the portfolio path that never appears in a rate-of-return comparison.

At this premium level the portfolio stays below the $50,000 threshold throughout, so the deduction is not affected. Enter your operating income below to test this against your own numbers, and note that any passive income you already earn stacks on top of this.

Being clear about the gaps matters more than adding decimal places to the parts that are modelled.

It assumes one freeze on one corporation, with no holdco above it and no trust allocations changing who reports the gain. It ignores probate, US estate tax exposure, and any shareholders' agreement that forces a buy-sell at death. It assumes the corporation still exists at the last death and has the surplus to pay a wind-up dividend. It applies today's tax rates across the whole horizon, which is the least defensible assumption in the model given the horizon involved. It treats the capital dividend account as available and unencumbered, when in practice other transactions may have drawn on it. It assumes the policy stays in force, which requires the premiums to actually be paid. And it says nothing about whether a freeze was the right move in the first place.

Post-mortem strategies. This models the plain case: the estate pays capital gains tax on the shares at death, then the corporation pays a dividend to get the money out. In practice a subsection 164(6) loss carryback or a pipeline can remove one of those two layers, and with insurance the capital dividend is often used to replace the terminal gain rather than merely fund it. Those strategies generally make the insurance case stronger than shown here, and they require a tax advisor to implement. They are out of scope for this calculator.

One simplification that leans against the portfolio. Part IV tax on the portfolio's dividends creates GRIP, so part of the wind-up could go out as eligible dividends at a lower personal rate than the non-eligible rate used here; on the default scenario that is worth roughly twenty thousand dollars to the estate.

Joint policies use a real joint illustration. A last-to-die contract carries far less mortality cost each year than a single life, so its adjusted cost basis stays high for longer and the capital dividend credit is smaller than a single-life curve would suggest. The joint figures here come from genuine last-to-die illustrations, one per product, applied to every couple. Couples far from the illustrated ones (a man of 65 with a woman of 62, or a man of 70 with a woman of 60) carry more error.

Every number here is illustrative and generated from stated assumptions. It is education, not advice, and not a substitute for your CPA or tax lawyer.