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Holding Company Ownership of Life Insurance 

Holding-Company-ownership-life-insuranceThe main advantage of setting up a holding company is the ability to separate the company's assets from the company's liabilities. Operating company's assets are exposed to liabilities from creditors, litigation, and bankruptcy. Unforeseen circumstances such as bad debts or a downturn in the economy can bankrupt a company, leaving its retained earnings and assets exposed to creditors.

If the active corporation has retained earning or will generate future retained earnings then setting up a holding company can provide many benefits. The operating company may be able to transfer retained earnings to the holding company through a dividend payment without incurring any additional tax on the transfer. 

There are many benefits from this arrangement, in most cases holding companies have less exposure to liabilities. The exposure of liabilities in holding companies can be mitigated. Holding companies can own a variety of different assets including real estate, segregated funds, GIC’s, term deposits and life insurance policies. Life insurance policies can be used to fund ones retirement when the operating company is sold, wound down or transferred to their children active in the business. 


    1. Policy ownership will not have to be transferred on sale of an operating company.

    2. Cash values in a holding company can be used to supplement retirement income.

    3. Holding companies can own different assets such as real estate and other investments. The life insurance policy can be used to pay for future tax liabilities of the shareholders estate.

    4. Investments inside a tax exempt universal life or whole life insurance policy grow tax-deferred.

    5. The tax free benefit the holding company receives can be used to pass down some or all of the proceeds through a tax free capital dividend account without any tax.

    6. Potential for creditor protection from creditors of operating company.


    1. Cash surrender value could affect the qualified small business corporation status for purposes of the enhanced capital gains exemption.

    2. Holding companies do not share the same preferential tax treatment as operating companies.

    3. Policy gains and taxable income may arise on future transfer of ownership of the policy.

In conclusion there are many moving parts to tax and estate planning. We always advise clients to seek independent accounting and legal advice.


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The information provided on this web site is intended for general information only. It should not be construed as legal, accounting, tax or specific insurance and investment advice. Clients should consult a professional advisor concerning their situations and any specific insurance and investment matters. While reasonable steps have been taken to ensure that this information was accurate as of the date hereof, Stone-Hedge Financial Group Inc. and its affiliates make no representation or warranty as to the accuracy of this information and assume no responsibility for reliance upon it.

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