Pillar 02 — Buy-Sell
Buy-Sell Agreement Funding
An unfunded buy-sell is a promise without performance. We design the structure, place the liquidity, and integrate the post-mortem planning under s. 164(6) and s. 112(3.2) so the agreement actually works on the day it has to.
Institutional-grade structuring
Cross-purchase plans collapse under their own administrative weight.
As your practice grows, traditional cross-purchase agreements become an administrative nightmare. For just 4 owners, standard structuring requires 12 separate policies (the N(N-1) rule). We utilize the Holdco Criss-Cross method and Capital Dividend Account (CDA) tracking to provide seamless, tax-free estate liquidity—avoiding the administrative chaos and ensuring funding caps scale with your corporate valuation.
Funding structures
Holdco Cross-Purchase
Each shareholder's Holdco owns and benefits from a policy on the other principal. On death, the surviving Holdco receives the death benefit tax-free and acquires the deceased's Opco shares at FMV — achieving an ACB step-up that mitigates future capital gains. Requires post-mortem planning to clear the Holdco-level gain.
Corporate Share Redemption
Opco owns the policies and, on death, receives the proceeds, credits the CDA, and redeems the estate's shares under s. 84(3) — designating the deemed dividend as a tax-free capital dividend via Form T2054. Operationally simple: N policies for N shareholders rather than N(N−1).
Hybrid / Wait-and-See
Defers the election between cross-purchase and redemption until the triggering event, preserving the flexibility to optimize the post-mortem path against the prevailing ACB, CDA balance, and stop-loss landscape at the time of death.
Post-mortem planning
The 50% and 100% Solutions under s. 164(6).
The 50% Solution
Pay half the deemed dividend as a tax-free capital dividend and half as taxable. Avoids the s. 112(3.2) stop-loss grind, allows full carry-back of the estate's capital loss under s. 164(6) to wipe out terminal capital gains, and preserves half the CDA for future tax-free distributions. Lowest long-term tax cost in most scenarios.
The 100% Solution
Pay the entire deemed dividend as a tax-free capital dividend. Triggers the s. 112(3.2) stop-loss rules — the estate's capital loss is reduced by 50%, so half the terminal capital gain remains taxable. Lowest immediate tax outlay, but exhausts the CDA entirely.
Side-by-side — In plain English
Two ways to structure the buy-out. How do they actually compare?
Both use life insurance to fund the purchase of a deceased partner's shares. The difference is who owns the policy — and that one decision changes the tax, the cost basis, and the complexity.
| Question | Holdco Cross-Purchase | Corporate Share Redemption |
|---|---|---|
| Who owns the policies? | Each owner's holding company owns a policy on the other principal. | The operating company owns one policy on each shareholder. |
| How many policies for 5 owners? | 20 policies (each owner insures all the others). | 5 policies (one per shareholder). |
| Does the survivor get a 'fresh start' on cost basis? | Yes — the surviving Holdco acquires the deceased's shares at fair market value, receiving a bumped-up ACB. Valuable if the operating company is later sold. | No — the surviving shareholder's original ACB is unchanged. The capital gain is deferred to a future sale. |
| Are the policies safe from business creditors? | Yes — insulated inside the holding companies, away from Opco's trade creditors. | Not by default — if owned directly by Opco, policies are exposed to operating trade creditors. Can be partially mitigated with tiered Holdco/Opco structures (Holdco-owned, Opco-beneficiary) but adds complexity. |
| Best for… | Small groups (2–3 owners) who want maximum tax efficiency on a future sale. | Larger groups, or when administrative simplicity matters more than basis step-up. |
There's no universally "right" structure — it depends on the number of owners, the long-term exit plan, and the creditor profile of the operating business. Many of the strongest setups use a hybrid that keeps both options open until the moment of need.
Common failure modes
Why most buy-sell agreements quietly stop working.
- Stale formula valuations that no longer reflect enterprise FMV
- Underfunded policies forcing asset sales or bank borrowing on death
- Missing trigger events (disability, divorce, retirement, default)
- N(N−1) policy sprawl in cross-purchase agreements with multiple owners
- S. 15(1) shareholder-benefit exposure when Opco pays premiums on personally-beneficial policies
- Failure to file Form T2054 before distribution — Part III penalty up to 60% of the excess dividend
Review Your Buy-Sell
Bring your current agreement, the most recent valuation, and the corporate structure chart. We will identify the funding gap, the post-mortem path, and the CDA position before recommending coverage.