Construction Design Firm Owner
1. Client Snapshot
| Item | Details |
|---|---|
| Business Type | Construction design firm |
| Location | Toronto |
| Owner | Female, age 46 |
| Annual Profit | ~$500K |
| Retained Earnings | ~$2.5M |
The owner operates a profitable project-based design business with strong retained earnings accumulation inside the corporation.
2. Planning Challenge
- Corporate earnings accumulation exceeding efficient distribution capacity
- Dividend extraction would result in significant personal-level taxation
- Need to balance liquidity, retirement planning, and estate objectives
3. Strategy Framework
Implementation Structure (Illustrative)
- Policy type: Corporate-owned participating whole life insurance
- Initial death benefit: ~$2.64M
- Annual premium: $100,000
- Funding period: 20 years
- Structure designed to align with corporate cash flow capacity
- No external financing integration required
| Step | Planning Element | Purpose |
|---|---|---|
| Step 1 | Corporate-owned participating life insurance | Reposition corporate surplus into long-term planning asset |
| Step 2 | CDA-focused estate structure | Enable future tax-free capital dividend capacity |
| Step 3 | Collateral lending flexibility | Preserve liquidity and optional retirement income |
4. Before vs After Structuring
| Planning Dimension | Before Structuring | After Structuring |
|---|---|---|
| Ownership Structure | Owner holds all growth in OpCo/HoldCo | Growth partially repositioned into structured corporate asset |
| Growth Allocation | All appreciation increases estate tax exposure | Future value partially converted to insurance-backed estate asset |
| Retirement Liquidity | Dependent on dividends or asset sale | Collateral lending flexibility available |
| Tax Exposure at Death | Corporate value subject to taxation | CDA mechanism provides tax-efficient distribution capacity |
| Asset Risk Profile | Concentrated in operating business | Diversified into insurance asset class |
| Estate Transfer Efficiency | Taxable wealth transfer | Structured tax-advantaged estate liquidity |
5. Financial Outcome (Illustrative, projected to age 90)
Projections are based on current dividend scale assumptions for comparative planning purposes. Two planning scenarios were evaluated:
If retirement income is used (Collateral Loan Approach), from age 66 to 85
- Projected access to~$170K/year
- Remaining estate benefit~$3.75M
- CDA credit created~$8.72M
Collateral loan note: CDA credit is generally based on insurance proceeds received (less ACB) and is not reduced by subsequent use of proceeds, including loan repayment.
If retirement income is not used (Estate-focused outcome)
- Projected death benefit~$9.37M
- CDA credit~$8.72M
CDA note (general): At death, a CDA credit is generally created equal to insurance proceeds minus ACB, enabling a tax-free capital dividend to shareholders.
6. Planning Impact
- Corporate surplus converted into tax-efficient estate asset
- Liquidity flexibility without forced dividend extraction
- Structured intergenerational wealth transfer
7. Professional Summary
This case demonstrates how corporate retained earnings can be repositioned into a long-term corporate estate planning framework while preserving liquidity and retirement flexibility.
Next Step
A confidential review can assess whether a similar corporate estate planning structure aligns with your tax profile and long-term planning objectives.
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