Client Profile
Michael and Laura Russo are the founders of a 35-year-old Ontario-based construction company specializing in commercial and light industrial projects across the GTA.
•Founder age: 66
•Annual revenue: ~$45M
•Employees: 120+
•Children: Two adult children active in senior leadership (Operations and Finance)
•Assets: Majority of family wealth tied to the operating company and real estate
Asset Structure
•
Principal Residence (Personally Held)
– Fair market value: $3.8M
– Fully protected by the principal residence exemption
•
Operating Company (OpCo)
– Enterprise value: ~$12M
– Head office, yard, and warehouse property owned by OpCo
– Low adjusted cost base due to purchase decades ago
•
Holding Company (Holdco)
– Portfolio of commercial and multi-residential rental properties
– Fair market value: $16.4M
– Generates strong recurring rental income
Projected Estate Tax Exposure
Upon death, Michael’s shares in OpCo and Holdco would be deemed disposed at fair market value.
Modeled capital gains and corporate tax exposure resulted in an estimated estate tax liability of approximately $7.6M.
The issue was not asset value. It was liquidity.
The Challenge
1. Significant Tax Exposure
The majority of the family’s wealth was embedded in productive assets:
•Appreciated head office property inside OpCo
•Low-cost-base rental portfolio inside Holdco
•Growth in enterprise value of the construction business
The deemed disposition of shares at death would trigger an estimated $7.6M tax liability.
2. Cash Flow and Working Capital Constraints
The construction business required:
•Strong retained earnings
•Bonding capacity
•Access to capital for equipment and project financing
•Stability in economic downturns
Selling assets to fund estate tax would:
•Reduce recurring rental income
•Weaken balance sheet strength
•Potentially impair bonding ratios
•Potential double taxation
•Disrupt long-term growth planning
Draining corporate liquidity to pre-fund insurance premiums using cash would also reduce capital available for operations and real estate acquisitions.
3. Legacy and Business Continuity
Both children were actively running the business. The founders’ primary objective was clear:
•No forced sale of properties
•No outside investors
•No operational disruption
•No refinancing pressure placed on the next generation
The IFA Solution
After modeling multiple scenarios, the advisory team implemented a corporate-owned permanent life insurance strategy structured as an Immediate Financing Arrangement (IFA).
Structure Overview
✓The life insurance policy was owned by Holdco.
✓A permanent participating policy provided long-term stability.
✓Annual premiums were funded using corporate cash flow.
✓A third-party lender provided collateralized financing.
✓Borrowed funds were deployed for income-producing purposes.
At Death
The $7.6M estate tax liability could be funded tax-free via the CDA credit without selling properties. The loan would be repaid using a portion of the insurance proceeds, leaving the rental portfolio and operating company intact.
Why the IFA Was Ideal
1.Preserved Corporate Liquidity:Â Maintained working capital and bonding capacity.
2.Avoided Forced Asset Sales:Â Created liquidity without liquidating productive assets.
3.Maintained Capital Efficiency:Â Interest costs were deductible, and growth continued.
4.Protected Leadership:Â Children inherited a stable company with clean tax funding.
This structure allowed the Russo family to pass down over $30M in assets without selling a single property.
The Traditional Alternatives
Working with Estately Wealth
We partner with Canadian accountants to design and implement advanced insurance-based planning strategies.
• 20+ Years Experience
• Licensed Across Canada
• Branded Presentations
• Annual Accounting Summaries
• Post-Mortem & CDA Support
• Secure Document Repository
