The Pair Go Together:
Estate Freeze & Life Insurance Strategy
​​Posted on March 9th, 2023 by Don Anderson, P.Eng. CLU

After working hard for years building up the family company, many business owners often reach a point in time when they want to change gears and enjoy the next chapter of their lives. Let the next generation take over. 

Their trusted CA/CPA advisor prepares an "estate freeze" to place limits on their asset valuation for estate planning purposes. The parents keep control as the transition progresses. Great, a good first step!

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The second step?
​Pair the estate freeze with a Legato plan. Make the future transition easier, more affordable and better prepared. 

The Legato plan typically doubles and even triples the estate impact when compared to a taxable, corporate investment using an equivalent amount of retained earnings. 

That higher green line of the Legato plan would give any business owner and their family a good reason to be smiling and happy! ​

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Business Owner Situation
The operating company has achieved success. Perhaps the holding company has benefited from the rapid rise in real estate values across British Columbia and Alberta. With retained profits and surplus cash, the corporation has invested in GICs or other taxable investments, earmarked for the future distribution to heirs or a favourite charity. 

Most importantly, planning ahead needs to be done so their hard work and success can flow easily and efficiently to the next generation without impactful erosion due to tax and estate issues. 

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The Estate Freeze
With guidance from a professional business valuator, the valuations of all or a portion of the family assets get tied together into an ownership freeze by the trusted CA/CPA in order to lock this owners' worth to the current values. After the freeze has been put in place, increased valuations due to the growth of the business and investment returns will flow only to the next generation of family members or other business partners. 

​Why Freeze?
By working in concert with each of the family members and their trusted advisors, the business family creates this estate freeze to enable the best possible plan for a smooth and affordable transition of their business, related investments and real estate. 

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Why Legato?

Legato works in concert with the owner's trusted advisors responsible for the estate freeze and the client's tax planning. If needed, we can recommend suitable accounting and legal advisors from these strategic partners in accounting.

​Why A Life Insurance Plan?
The life insurance strategy adds three tax incentives:

Tax-free accumulation of the investment inside the Legato plan - similar to the growth of a TFSA. 
Tax-free payout of the death benefit into the company after the owners demise.
Tax-free dividends to the shareholder (owner's estate) created by the CDA of the life insurance payout.

​By incorporating a Canadian life insurance strategy into their estate freeze strategy, the family will pay ​fewer taxes and create much higher net estate liquidity. The business owner's net estate value typically grows to twice or even triple the value of a comparable strategy that has not been prepared utilizing corporately-held life insurance.

On a final note, business owners who start their life insurance plans earlier in their lives do receive higher valued outcomes. 

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Don Anderson
Legato
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