The Corporate Wealth Transfer Strategy - Minimize Taxes and Maximize the Value of your Estate

February 18, 2019 | Thomas De Mello


The corporate wealth transfer strategy allows you to move corporate investment dollars from a tax-exposed environment to a tax-deferred one, maximizing the amount that is available to your estate.

The corporate wealth transfer strategy allows you to move corporate investment dollars from a tax-exposed environment to a tax-deferred one, maximizing the amount that is available to your estate.

There are options with respect to your corporate investments. You can continue to pay tax on the income earned on your company’s invested profits (both annually and at death) or you can take advantage of a planning strategy known as the Corporate Wealth Transfer. This strategy may be appropriate for you if you have corporate investments or retained earnings available for investment and wish to benefit from a tax-deferred investment.  It also allows for liquidity and access to the accumulated values in the policy through a variety of methods.

The corporate wealth strategy can provide a significantly larger net estate value than a traditional fixed income portfolio that returns 4%, and can even provide greater return potential than a traditional aggressive growth portfolio that generates 9% returns – Both without the market volatility inherent in a traditional investment portfolio.


Minimize Taxes: 

The corporate wealth transfer strategy involves the corporation using excess cash flow or the reallocation of liquid investments to invest in a corporately owned tax-exempt life insurance policy. Permanent tax-exempt life insurance offers tax-deferred investment growth and provides a tax-free death benefit. Therefore, the corporate wealth transfer ultimately aids in minimizing both taxes annually and at time of death so a business owner may be able to maximize the amount available to their estate.


Liquidity - Access to Cash
Permanent tax-exempt life insurance contains an account called cash surrender value. The key benefit of this is that the cash value grows on a tax deferred basis. Typically there is slow growth to start but rapid growth in later years due to the compounding effect. A business owner may want to access these cash values in the future without canceling the policy and there are three ways to do accomplish this:
    1. Partial or full withdrawal of funds within the cash value account.
    2. Obtain a policy loan against the cash value from the insurer.
    3. Collaterally assign the policy to secure a loan
Due to the tax-deferred growth and the ability to utilize these funds in the future, potentially without a taxable event, the cash value account achieves flexibility to a business owner. In comparison, other corporate investments producing passive income may not be tax-deferred and may be taxed annually at the highest corporate tax rate


Investment - Maximize Net Estate Value: 

It is important to remember that life insurance is comparable to a fixed income asset so to make a fair comparison we typically do not compare to an aggressive growth portfolio.

The graph below assumes an investment of $50,000 per year for 10 years into a tax-exempt whole life insurance policy versus a fixed income portfolio generating 4% return each year. As you can see, the corporate wealth strategy provides a significantly higher net estate value than a traditional investment portfolio throughout every point in the client's lifetime. 

Note, the insurance projections provided below include certain assumptions with respect to health, age, and policy type. Premiums and benefits may vary based on individual circumstances. 


As illustrated in the graph below, even when comparing to a traditional investment portfolio  that returns 9% per annum, the corporate wealth strategy can provide a higher net estate value up until the client turns 99 years old. This is because each year the passive income produced may be taxed at the highest corporate tax rates thereby deteriorating the compounding effect. The estate benefits more from a tax-exempt life insurance policy for every year until they turn 99 years old. More importantly, these clients will not have to actively manage their investments to earn 9% per year which may prove difficult.


Please contact us today if you would like to learn more about how The Corporate Wealth Strategy can help you minimize taxes, enhance the value of your corporation and maximize the value of your estate.