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Infinite Banking in Mission

If you own a business with someone else, there is a question that comes before anything on this site: what happens to your share, and to their family, if one of you dies tomorrow.

Above the river

Mission climbs the north bank of the Fraser opposite Abbotsford, with Westminster Abbey and its bell tower on the hill above town and the Stave Lake dams behind. The West Coast Express terminates here, which made it a commuter town, and the acreages and small holdings on the benches above the river keep a rural economy alongside forestry and the trades.

What matters financially is scale of enterprise. A great deal of the working economy here is two or three people in business together: a contracting firm, a shop, a small operation with a partner rather than a payroll department.

The question that comes first

This is the page's central point, and it precedes any discussion of strategy.

Two people own a business. One dies. The survivor now has a business partner who is the deceased's spouse, or their estate, or their adult children, none of whom know the trade and none of whom chose this. The survivor wants to buy them out and generally has no cash to do it with, because the money is in the business. The family wants fair value and needs it soon. Both sides are reasonable and the situation is intolerable.

That is what a buy-sell agreement exists to prevent. It is a contract signed while everyone is alive and well, setting out that on a death the survivor buys and the estate sells, at a price determined by a stated method, within a stated time. Without it, the outcome depends on negotiation between a grieving family and a shaken survivor, and that rarely ends well for either.

The agreement is a lawyer's document. It is not a form and not something a practitioner drafts.

Where insurance comes in

An agreement that says the survivor will buy is worthless if the survivor has no money. Life insurance is the ordinary way to fund it: policies on each partner's life, so that a death produces the cash the agreement requires on the day it is required.

The structure matters and it is genuinely technical. Whether the corporation owns the policies or the partners own them on each other's lives changes the tax outcome, the treatment of the Capital Dividend Account credit arising under subsection 89(1), and the adjusted cost basis of the shares acquired. Different structures suit different situations, and the wrong one produces a bill nobody expected. This is accountant and lawyer work, together, with the practitioner supplying the contract rather than the plan.

The agreement and the policies must match. If the agreement says one thing and the policies are owned another way, the money arrives in the wrong hands, and it is the survivor and the family who discover it. Have both read side by side before either is signed.

Where the strategy on this site fits

Somewhere after that. A business whose partners have no buy-sell arrangement has a problem worth more attention than cash value accumulation, and a practitioner who leads with this strategy while that gap exists has the order wrong.

When it does fit, the ordinary cautions apply. Cash surrender value stays below cumulative premiums for many years, commonly more than a decade, so an early exit is a loss. Dividends are not guaranteed: they are declared annually by the insurer's board based on the participating account's experience, and the scale can be revised downward. A business carrying operating debt, or one that may need every dollar for equipment in the next few years, should not be funding long-dated premiums.

British Columbia rules and where it does not fit

Insurance in British Columbia is regulated by the Insurance Council of British Columbia, and a professional here holds a Life Insurance Agent licence. Verify it in the Council's public register and ask how the person is paid. British Columbia has no title protection statute of the kind Ontario, Quebec and New Brunswick have enacted.

Nothing on this page is advice, and nothing on it is legal or tax advice about corporate structures. No assessment has been made of anyone reading it, and the author is not a neutral party: he is licensed to sell the contracts this strategy uses and is paid a commission when one is placed. If you have a partner, bring whatever agreement exists between you, even if it is a page written years ago. What is in it changes everything that follows.