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Corporate estate bond – a client profile
Corporate Estate Bond – Manulife UL
April 2024
What is it?
The Corporate Estate Bond is a financial planning strategy designed to increase the size of your client’s estate by moving surplus corporate dollars exposed to tax into a tax-deferred life insurance policy.
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
How does it work?
Your client’s Corporation purchases an exempt life insurance policy, with your client as the life insured and the Corporation named as beneficiary. The Corporation deposits amounts into the policy in excess of what is required to pay the policy charges, creating cash value. The cash value accumulates on a tax-deferred basis that may increase the death benefit payable under the insurance policy.
At death, the Corporation receives the life insurance proceeds tax free. The Corporation receives a credit to its capital dividend account for the amount of life insurance proceeds less the insurance policy’s adjusted cost basis. Capital dividends may then be paid tax free to your client’s estate.
Why does it work?
- provides life insurance protection which increases the size of your client’s estate today and into the future
- opportunity to create 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 the following example, your client is a male, non-smoker, 57 years old. His Corporation will invest $50,153 per year for the next 10 years at an assumed rate of 4%. He has earmarked this investment for his children when he dies. The corporate tax rate is 50.17% and his personal dividend tax rate is 47.74%. By starting with $1,000,000 of initial death benefit, here’s how the Corporate Estate Bond can increase the size of the gift when he dies.
Corporate Estate Bond
| Personal information | Male, 57, Non-smoker |
|---|---|
| Manulife UL interest rate | 4.00%* |
| Initial death benefit | $1,000,000 |
| Deposits | $50,153 annually for 10 years |
| Personal dividend tax rate | 47.74% |
| Corporate tax rate | 50.17% |
| Before tax alternative investment rate | 4% |
| Manulife UL | Alternative investment | ||||||
|---|---|---|---|---|---|---|---|
| Accumulated value ($) | Before tax redemption value ($) | Net estate value ($) | Year | Age | Annual interest ($) | After tax balance ($) | Net estate value ($) |
| 29,271 | 29,271 | 1,007,575 | 1 | 57 | 2,508 | 51,403 | 27,265 |
| 165,215 | 165,215 | 1,053,786 | 5 | 62 | 13,179 | 270,143 | 147,410 |
| 369,923 | 369,923 | 1,052,560 | 10 | 67 | 28,083 | 575,658 | 324,683 |
| 314,689 | 314,689 | 1,174,115 | 20 | 77 | 35,919 | 736,281 | 460,289 |
| 260,903 | 260,903 | 1,215,189 | 27 | 84 | 42,672 | 874,698 | 577,149 |
Important Information – The benefits shown above are a summary of some of the benefits reflected in a Corporate Estate Bond illustration. Corporate Bond illustrations are based on assumptions that are not guaranteed. A change in the assumptions will impact the benefits illustrated under the strategy. The net estate value shown is based on the assumption that the insurance and the alternative investment are paid out as a dividend at death. It does not reflect any capital gain on the shares of the Corporation as a result of the deemed disposition at death.
Why choose Manulife?
When your client purchases a policy from us, they put their financial dreams in our hands. That’s not a responsibility we take lightly.
- Leading edge life and living benefits products
- Tax and estate planning expertise and support on complex tax and estate planning issues
- Facilitators in the underwriting process to get your clients’ large cases through underwriting as quickly and as smoothly as possible
- Marketing support to develop customized solutions to help you make the sale
The Advanced Sales team at Manulife writes various publications on an ongoing basis. These publications are distributed on the understanding that Manulife is not engaged in rendering legal, accounting or other professional advice. If legal or other expert assistance is required, the service of a competent professional should be sought. These columns are current as of the time of writing but are not updated for subsequent changes in legislation unless specifically noted. This information is for Advisor use only. It is not intended for clients. This document is protected by copyright. Reproduction is prohibited without Manulife’s written permission.