Professional Incorporation

The Issue
Lawyers, accountants, doctors, dentists, chiropractors, etc will need to answer the following question:

Should I incorporate my practice?

The Myths

The Spender Myth: "There is no benefit because I spend all of my money."

The Saver Myth:"It is only a tax deferral, I will eventually have to pay the tax."

Tax Rates (Personal)

Personal Tax Rates: taxable income of $103,000+
Ordinary Income - 46.4%
Dividends - 31.3%
Capital Gains - 23.2%

Tax Rates (Corporate)
Small business rate on first $200,000 annual income:
2003 - 19%
2005 - 17%
Keeping the Benefit
Opportunity for $500,000 capital gain exemption on sale of shares. Opportunity for multiple will planning to avoid probate.

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Estate Planning For Business Owners

Primary Roles (3) of Business:

• Current income 78*
• Retirement Income 46*
• Family Wealth 46
• Business as an Investment 40*
• Family Pride 22
• Family Employment 18
• Community Employment 15
• Legacy 14
  

What is Estate Planning?
The process of developing a plan for the creation, conservation and disposition of your assets so that your goals for yourself and your family, during life and after death, can be realized with maximum effectiveness. There are two components:

Financial * Assets and Liabilities * Estate settlement costs * Gifts or Donations * Taxation * Insurance

Administrative * Wills, including gifts or donations * Buy-sell agreements * Trusts * Probate * Insurance

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Corporate IRP

What is it?

• The accumulated value in a corporate-owned life insurance policy provides a cash flow at a point in the future by serving as collateral for a bank loan.
• Either the corporation or the shareholder obtain a bank loan.
• Where the corporation borrows, funds flow out to the shareholder as a taxable bonus of dividend.
• Repayment of the bank loan occurs at death of the insured.

Who can benefit from the Corporate Insured Retirement Program?

• The shareholder of a private corporation that requires life insurance protection. (i.e. key person, buy-sell, estate liquidity)
• Corporations with excess cash flow not required for business operations.
• Shareholders who want to access corporate dollars on a tax-advantage basis.

Benefits of the Corporate IRP

• Permanent insurance protection
• Use of "cheaper" corporate dollars
• Cash values are a corporate asset
• Tax deferred accumulation within exempt life insurance
• Access to cash values on tax efficient basis via bank loan
• Bank loan repaid by tax-free insurance proceeds
• Excess death benefit and other assets (equal to bank loan) paid out to estate tax-free

How Does the Corporate IRP Work?

• 1) The corporation purchases and makes deposits into an exempt life insurance contract under which the shareholder is the life insured.
• 2) At a point in the future, the company borrows from the bank using the life insurance policy to secure the debt (up to 75% of cash value). The company pays bonus / dividend to the shareholder.

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