How To Build A Corporate 'TFSA' Through Life Insurance

[@brl6219]

I’ve had a universal life policy since I was a kid. Premiums were so cheap when purchased so young, and premiums are now paid from dividends. Goal today is to pay tax to CRA for any remaining RRSP/RIF after last survivor passes away with the proceeds.

[@pal4597]

Great job, however, not everyone goes into retirement in a great space. After a first death, an influx of a death benefit is not a lottery, it can be survival money for the spouse survivor...especially if there is longevity in a family.

[@normbond8888]

Advantages of whole life taken very early also include paid up policy that still grows in face value, immediate money to pay for funeral expenses while waiting probate of will. It also helps pay the taxes on inheritance for kids or grandkids. This allows them time to decided the best timing for the sale is assets ie: real estate, stocks, mutuals etc without having to rush to payoff any other debt expenses. Term life & whole life serve different needs for different people so as long as you do your homework on insurance you can make an informed decision.

[@MitchelDSouza]

Thank you for speaking up on permanent life insurance and who could benefit from it! This advantage is very rarely spoken about for the ones who'll accumulate significant wealth by retirement..

[@jordanharkness]

If you take out a while life policy with the corporation as the beneficiary, how do you secure a loan against it personally? For example, if my policy pays out $1m, and i want to take out a loan of $100k each year personally such that the loan of $1m is paid back upon death, how does the bank go about securing the loan against that death benefit? I hear this is a legal way to extract retained earnings from the company, tax free, during retirement.

[@ll_distribution]

Thank you for sharing! Whole or universal is a good option to plan but earnings yields on premium remain taxable when you pull out or in the hands of beneficiary. Still, as CO ongoing yearly your premium may be deductible if you use your life insurance policy as collateral for a loan where you borrow money against your insurance cash value and where the said loan is for earnings business or property income. See a tax professional.

[@bRIZZAd]

For those with incorporated businesses, who have maxed out personal tax-advantaged accounts (or have a trajectory that they will)... and also have goals of leaving a legacy for a different generation, this is a great option. I like how you've framed it as a TFSA for corporations. I'm presently doing this and suspect it will help me be more free with my money in retirement, knowing this will always be there for the next generation. It's not mine, it's theirs, there is a clear boundry and it is tax optimized. If things get real shaky in the future, at least it is there as a last resort backstop if I need to tap into it. It can be a tough thing to pull the trigger on though - as you'll want to consider it while you're young & insurable, and you need to have a good sense of where your business is headed with some good level of confidence. It is difficult to be confident about much in today's climate! As such, there is an element of 'rolling the dice' on this one, as with all things... and that risk/appetite level will differ with everyone's personal situation. I'm glad I found it was an option, even if I'm in a small % category where it might apply. Thanks for sharing Adam. Hopefully there is another 'me' out there that benefits from the info.

[@ParallelWealth]

Thanks for the feedback Brad. Corp TFSA just sounds better - and is essentially what it is!

[@BJH-r5s]

Adam, I really enjoy and appreciate your knowledge sharing videos! Like my parents, I purchased whole life insurance to help cover taxes on family former farm land that we hope to pass on to the next generation.

[@ParallelWealth]

Brad, great to hear. Not enough people look at this option.

[@denipar69]

Whoa! This is a huge tip for corporations and tax sheltering! Thank you for sharing!

[@ParallelWealth]

Denise, you are welcome - I wish more people would look at strategies like this...they can work amazingly well:)

[@austinly1]

If the corporation is paying my life insurance, will I be required to pay income taxes? Are you describing Golden handcuffs or Executive bonus? This video indicates a bit longer… if I got extra money = Roth IRA on the other hand?

[@WWIIPacificHistory]

Is there a way to do this with an S Corporation?

[@joanalai5738]

Thanks for your videos, they are awesome! Please do a video on policy loans! Also, I have some friends who won't have assets to pass down to their children but have purchased whole life policies so their kids will have an inheritance. What are your thoughts on that?

[@ParallelWealth]

That can wok if there is a desire to leave an inheritance, but short on assets.

[@RB-kl4ub]

Hello - how do your beneficiaries (say your kids) receive the death benefit tax free from a whole life policy in your corporation? Do they need to become shareholders of the company, or just added as beneficiaries in a will. Or both. Thanks for your info!

[@jordanharkness]

I've just been looking into this question too. The way i understand it is that the beneficiary of the while life policy must be the corporation. When it pays out, it pays into the CDA account. The corporation must then be structured to pay out to the shareholders who are the recipients of the proceeds. For example, if i die and half my shares go to my wife and half to my daughter then the corporation could pay half of the cda to my wife and half to my daughter. There are more complicated share structures out there, but that's the simplest. I read that you must NOT make the individuals beneficiaries directly or CRA will tax the death benefit. They could end up losing 40 or 50%!

[@aakashchokshi2180]

Hey Adam. I have been following you for a while and have been through many of your videos which seems to be really useful. Can you please make a video for salaried persons as well. Thank you in advance.

[@ParallelWealth]

Almost all would be geared to salaried employees. Is there a specific area to address that I have missed?

[@jeffreyyao3923]

Is that insurance called Key Personnel LIfe insurance?

[@ParallelWealth]

Not usually - that would be typically term life insurance.

[@jeffreyyao3923]

@@ParallelWealth Thanks for your reply. I actually purchased a WL (with Manulife) insurance within my corporation, i.e. I purchased a Key Personnel Life Insurance with after-tax corporation money. I expect to pass it to my kids or use it as "emergency funds" when I retire. I say "emergency funds" with quotation marks because I think I can use this policy as a collateral to take out a loan. You are the expert here so I think you may expand this topic in another video because WL insurance policy is not necessarily only for inheritance but may also for policy holders themselves (who are still alive)

[@austinly1]

@@jeffreyyao3923 In my opinion, you should review your contracts. Talk to a tax agent and life insurance agent again. The WL contract within the corporation. The “Key life personnel insurance” to pass to your children.