May 24, 2021
Ryan Faridian
May 24, 2021

Life Insurance Strategies to Secure Estate Equalization

We all ask ourselves, “What happens when we’re gone?” As estate equalization advisors in Canada, our goal is to help clients answer this question.

We understand that when you pose this question, you're really wondering: Will your loved ones be taken care of? Will the legacy you built live on? Will your future generation have the financial means to follow your path? 

For family company owners, these questions have more than emotional value to them, but there's a business angle, too. Estate equalization advisors in Canada recognize the pressure for business owners to distribute their earned fortune and company ownership fairly to all children after they're gone. You’ve either started your independent business or carried on what was left off by the generation before you. When running a family business, you’ve earned direct income and accumulated wealth that has offered you and your family security and satisfying quality of life. When you’re gone, you want the people who you leave behind to enjoy the financial comfort from your estate. 

As estate equalization advisors in Canada, we find clients who want to make sure everyone has an equal slice of the pie. If you wish for your loved ones to receive balanced estate distribution, you must be organized, be prepared to plan, and take advantage of how life insurance could help.

What Your Estate Equalization Advisors in Canada Recommend 

There are some facts you should know and consider when approaching your estate equalization planning with your advisors:  First, as you approach your estate planning, you will need to understand both equal and fair distribution. If you are running a family business, how can you balance equal asset distribution to the child taking over the company and those uninvolved? 

As stated by RBC Wealth Management, “An underlying theme or driving force within estate planning, however, except the few special circumstances, should be on equitably dividing assets to limit the likelihood of any future resentment among children or other heirs and to keep the family united.”

When planning your estate equalization with advisors in Canada, you hold an immense responsibility in pleasing the people you leave behind with what you’ve left them. On the other hand, you also need to establish priorities that will benefit your family business. 

That’s where your life insurance planning comes in handy for your estate equalization strategies. 

Life Insurance Planning Tips From Estate Equalization Advisors in Canada

It’s always best to be prepared when planning your estate distribution. Your life insurance is the best solution for saving up extra wealth to ensure your family’s financial security whenever you leave. Doing this early in your life or as your business if thriving is recommended. That way, you can protect your wealth and assets against whatever life may throw your way. 

Under your life insurance, you can arrange more than just organizing your funds and putting aside extra money for your family. You can use your plan to designate how your estate will be distributed. 

Some of the best life insurance strategies for distributing your assets include: 

Funding a Buy-Sell Agreement for Your Business Inheritor

With your life insurance plan, you can commit sufficient funds for what’s known as a buy-sell agreement for your business. You could invest in a corporate-owned life insurance plan with this buy-sell agreement so the next generation can afford to buy your business if you pass away. You would basically be agreeing to sell as the business owner after you're gone, and you’ve left enough funds with your life insurance savings that your child could become the next owner. They won’t be sharing ownership in this case, meaning the earnings won’t be shared with siblings and the business share belongs to them.

When your business is sold to your next of kin, your estate will earn more cash that can be further shared among the people left behind, particularly the children who aren’t involved in the business. 

Creating Assets for Next Generation Not Involved in the Business

Leaving a fair estate portion to your children gets complicated when some are involved in your business, which is bringing them a regular revenue and income stream, and some are not. You’ll want those who are not taking over the company to earn what you could predict would be equal to their siblings’ making from the business. So how can you arrange this? 

You could designate your non-involved children as beneficiaries in your company-owned life insurance policy. When you pass away, the children uninvolved in the business will earn the liquid assets from your life insurance savings and estate wealth. Because your policy is corporate-owned rather than individually owned, the funds would not experience the same tax deductions as a personal plan an income would.

Make sure to be aware of the life insurance plan ownership rules. If you or your estate are not listed as a beneficiary in your company-owned plan, you could avoid heavy estate tax costs. Make sure to consult with estate equalization advisors in Canada, who will help you follow the appropriate tax-planning rules while maximizing your post-tax wealth. 

Stock-Redemption as Recommended by Estate Equalization Advisors in Canada

Under your life insurance plan, you can also ensure your stocks are redeemed upon your death, and the funds are passed to your children. The stocks would be submitted back to the company. The money paid for the stock redemption would be returned to your children. The participating children taking over the business would remain as shareholders earning profits from the company, while the non-active children receive cash from your stock-redemption life insurance planning. 

Seek Guidance from the Best Estate Equalization Advisors in Canada

Life insurance could play a valuable role in ensuring everyone is taken care of when you’re gone. As a family business owner, you will want to make sure your children taking over the business have the funds to buy it and become the next owner, while your non-active children receive money to support them. Equalizing your estate through life insurance will help you establish plans to cover everyone’s needs while distributing your wealth fairly. 

To learn more about your life insurance planning, consult with estate equalization advisors in Canada. At Global Solutions, we have decades of experience with high-earning clients and Canadian business owners. We understand your priorities of managing your wealth and succeeding your estate to the next generation. Let us guide you through the best strategies to suit your financial and estate planning needs. 

Contact us today to learn more. 

How Does Passive Investment Income Affect Your Corporate Income Tax Rates?