For corporations where shareholders are also employees of the corporation, in order to reduce tax payable on death, tax laws allow an employer, as a way of recognizing past services of a deceased employee, to pay to the deceased employee’s heirs a ‘death benefit’. The first $10,000 of such benefits are exempt from tax. Therefore, with a little planning, the corporation can enter into an agreement whereby it undertakes, upon the shareholder-employee’s death, to pay to his survivors the sum of $10,000. For corporations where spouses are both shareholder-employees, you can provide that a sum of $10,000 would be paid to the surviving spouse and another $10,000 would be paid to the survivors of the last spouse shareholder-employee to die for a total tax saving of $20,000.
Contact a member of Sicotte Guilbault LLP’s Business Law team for more information.