Insurance Planning: Split Beneficiary Agreements

Updated: Aug 28, 2018


Life insurance can be a cost-efficient tool to fund various needs upon the death of a

shareholder or key employee. For example, it can provide the necessary cash to

surviving shareholder(s) to purchase the shares of their deceased partner. Or, it can

provide funding to assist the corporation in the transition when a key employee has

been lost. Life insurance can be cost effective, in part, because policies are offered

preferential tax treatment under the Canadian tax code. In addition to most death

benefits being tax-free, proceeds received by a corporate beneficiary can, depending

on tax planning used, flow through a notional tax account called the Capital

Dividend Account “CDA”. Dividends received by a taxpayer from a corporate CDA

(called capital dividends) are free of tax. The ability to generate tax-free dividends

on a tax-free insurance payout makes insurance desirable in the corporate context.


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