Case Study: Preserving Family Wealth – A $25M Estate and Tax Planning Strategies

The Challenge: Managing Wealth and Minimizing Taxes

A successful family has accumulated $25M in wealth through corporate assets, publicly traded shares, and real estate holdings. However, upon transferring wealth to the next generation, they face a substantial $5M tax liability due to taxation on corporate assets, shares, and transfers.

Without strategic planning, a significant portion of their hard-earned wealth could be lost to taxes. The family must determine how to efficiently navigate these tax obligations while ensuring their financial legacy remains intact for future generations.

Exploring the Options

Taking on the Taxes Directly

One option is to simply pay the taxes owed, reducing the estate's value by $5M. However, this leaves a financial void that diminishes the overall wealth available to heirs.

Alternative Strategy: Instead of absorbing the tax burden, the family can strategically mitigate it through the Capital Dividend Account (CDA) and life insurance solutions.

Utilizing the Capital Dividend Account (CDA)

The Capital Dividend Account (CDA) is a special notional account within a Canadian private corporation that tracks tax-free amounts available for distribution to shareholders.

  • The non-taxable portion of capital gains.

  • Life insurance proceeds received by the corporation.

  • Other tax-free amounts

By leveraging the CDA, the family can structure their wealth transfer so that assets are distributed tax-free to shareholders, significantly reducing the impact of taxes on their estate.

Turning Taxes into Charity and Replacing Wealth with Life Insurance

  • Donate $10M to Charity → Receive a $5M Tax Deduction.

  • If the donation consists of publicly traded securities, the family can also eliminate capital gains tax, maximizing the impact.

  • Simultaneously, purchase $10M in life insurance

  • The cost of the insurance can be covered using corporate funds or structured on a cost-neutral basis.

By using this approach, the family converts tax liabilities into philanthropy while preserving their wealth for future generations.

Wealth Transfer Without Charity – Using Life Insurance Alone

If the family prefers not to donate to charity, another option is to fund life insurance purely to replace the taxable amount.

  • The life insurance proceeds enter the CDA, ensuring that funds move to shareholders tax-free.

  • This strategy allows the family to pay the $5M tax obligation while keeping the wealth intact for the next generation.

  • The cost of the insurance can be covered using corporate funds or structured on a cost-neutral basis.

Tailored Solutions for Every Family

This case study is based on real-world strategies that have helped families protect their estates. However, every family’s situation is unique—different asset structures, shareholder considerations, and tax liabilities require a customized approach.

Our Role: Guiding You Through the Process

We work closely with tax professionals, estate planners, and financial advisors to quarterback the entire strategy, ensuring the most tax-efficient and wealth-preserving solutions for your family. If you're facing similar wealth transition challenges, let’s set aside time to discuss the right plan for you.

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