How the Corporate Estate Bond® Works

Your situation

Your company is an operating company or an investment holding company. It has retained profits or surplus cash that is not paid to you, since you do not need the income. Your corporation invests the cash in GICs or other taxable investments, which you earmark for your heirs or favourite charity. You want a financial planning strategy that will increase the funds available when you die.

An option to consider - the Corporate Estate Bond®

This financial planning strategy requires your corporation to use its surplus cash to purchase a life insurance policy. By replacing the taxable investments with a life insurance policy, you will increase the funds available to your heirs when you die, reduce the amount of current and future tax your corporation pays, and create a mechanism to move funds out of your corporation tax free when you die.

How does the Corporate Estate Bond® work?

Your corporation purchases a life insurance policy on your life and is the beneficiary of the policy. The corporation deposits funds into the policy in excess of what is needed to pay the policy charges, creating cash value. This cash value accumulates on a tax-deferred basis, increasing the death benefit payable under the policy. When you die, your corporation receives the proceeds of the policy, tax free. The corporation receives a credit to its capital dividend account for the amount of the life insurance proceeds, less the insurance policy’s adjusted cost basis. Dividends can then be paid—tax free—to your estate out of the capital dividend account.

By taking advantage of the Corporate Estate Bond®, you have moved corporate investment dollars from a tax-exposed environment to a tax-sheltered environment, increasing the amount you give to your heirs or favourite charity when you die.

Corporate Estate Bond... A Client Profile

Who is it for?
• shareholder of a private Canadian Corporation
• in good health
• age 45 and older
• strong desire to leave a legacy at death
• receptive to long-term planning strategies
• a Corporation with surplus funds available to invest

Why does it work?
• provides life insurance protection which increases the size of your client’s estate today and into the future
• creates cash value that grows on a tax-deferred basis that may increase the insurance proceeds payable at death
• by moving funds into a life insurance policy, the amount of tax payable by the Corporation will be reduced
• insurance proceeds received by your client’s Corporation, generate a credit to the Corporation’s Capital Dividend Account
• the life insurance proceeds can be paid tax-free to your client’s estate via a tax free capital dividend and distributed to heirs or favourite charity, as directed in
the client’s will.

An example …

In this example, your client is a male, non-smoker, 55 years old. His Corporation will invest $20,000 per year for the next 15 years
at an assumed rate of 6%. He has earmarked this investment for his children when he dies. The corporate tax rate is 51% and
his personal dividend tax rate is 35%. By starting with $500,000 of initial death benefit, here’s how the Corporate Estate Bond
can increase the size of the gift when he dies.

Important Information – The benefits shown above are a summary of some of the benefits reflected in a Corporate Estate Bond illustration. Corporate Estate
Bond illustrations are based on assumptions that are not guaranteed. A change in the assumptions will impact the benefits illustrated under the strategy.

The Tax & Estate Planning Group, Manulife's highly respected team of legal, life insurance and accounting experts, provides individualized support on complex tax and estate planning issues.