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Estate planning for incorporated physicians

If you intend to keep your corporation until the end of your life, it could add complexity to your estate plan. Without the right strategies in place, you could end up paying more tax than you need to. There are many pitfalls to avoid and opportunities to know about.

Is estate planning more complicated for an incorporated physician? The short answer is yes.

Estate planning involves deciding who will benefit from your estate and in what manner and proportion.

But when you have a professional corporation, there is more to it. Without the right strategies in place, you could end up paying more tax than you need to.

One of the advantages of incorporating is deferring taxes—which means physicians can build significant value in their corporation.  

Good estate planning means you leave more of that value for your beneficiaries.

For incorporated physicians, having a professional executor in place is critical. If your estate is not properly managed, you could pay more tax than you ought to on the value of your corporation.

One level of tax is on the capital gain that’s triggered by your death. The income tax rules treat all capital property as though it was sold just before you died. This will mean a taxable capital gain, assuming your corporation has appreciated in value.  

A second level of tax occurs if your executor sells your corporation’s appreciated assets and distributes the cash to your estate. This is part of winding up the corporation.

But if the wind-up is done within a year of your death, the original capital gain tax can be recovered.

Proper planning is critical to avoid double taxation.

One popular estate planning tool is a corporate-owned life insurance policy. Many incorporated physicians will already own permanent life insurance before estate planning is top of mind.

There are other steps an incorporated physician can take ahead of time to preserve his or her estate.

For instance, you can pay yourself from your corporation and contribute the funds to your tax-free savings account. When you die, your TFSA assets can be passed to your beneficiaries tax-free.

Perhaps you want to leave some of your estate to charity. This too takes planning: there are ways to optimize your charitable donations… before and after death.

This kind of strategy calls for a holistic, integrated approach to all your financial planning.

Estate planning can be complex.

Leaving as much as you possibly can to your beneficiaries is often a matter of smart estate planning. There are many pitfalls to avoid and opportunities to know about.

At MD, we can provide expert advice on corporate-owned insurance and other estate planning strategies that protect your family’s assets—now and in the future.

If you have any questions, please contact an MD Advisor.

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