What is estate equalization for Canadian business owners?


Estate equalization is a strategy that lets you divide the assets of your estate fairly amongst your beneficiaries. Business owners can achieve estate equalization by offering a life insurance payout to some beneficiaries, and offering the business’ assets to others. This is helpful when some beneficiaries do not want to be involved in the business.


Estate planning is a balancing act — sometimes, it’s more about ensuring everyone gets equal value instead of getting the same assets. Life insurance can help with that, especially for entrepreneurs who want to pass on the family business.

In this article, we’ll show how life insurance can be used for estate equalization, and give you tips on how to equitably pass your assets onto the next generation.

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What is estate equalization?

Estate equalization is a strategy where an individual divides their wealth fairly between multiple heirs, especially where assets like a business are involved. 

  • It lets business owners use a life insurance payout as an alternative asset for heirs who do not want a share of the company
  • And, it helps your family avoid fighting over inheritance

An easy way to think about it is as equality vs equity. In simple terms, equality means everyone gets the same thing. But equity means everyone gets what they need to have equal value.

For estate equalization, this means ensuring all heirs get assets of equal value and not necessarily shares of the same assets. But before we dive into how this is done, let’s briefly explain a few key terms below.

what is estate equalization

What is an estate?

An estate is everything you own at the time of your death. This can include:

  • Real estate holdings
  • Personal property
  • Savings accounts 
  • Vehicles 
  • Business assets (for sole proprietorship)
  • A portion of business assets (if your business is a corporation)
  • Life insurance policies 

At your death, your estate is generally divided amongst your beneficiaries as determined in your will.

Did you know?
If you pass away without a will, provincial estate laws decide how your estate is administered. It’s usually passed along to your spouse, children, or other family members. If you pass away without naming a life insurance beneficiary, the money goes into your estate. From there, it’s distributed however you set up monetary assets to be distributed in your will.

What are business assets?

Your business assets include anything that gives your business value. These assets are generally categorized as:

  • Liquid — cash or anything that can be easily converted to cash
    • Stocks
    • Bonds
  • Non-liquid or illiquid — cannot be easily converted into cash
    • Real estate
    • Company vehicles
    • Office equipment
    • Hedge funds
    • Private business ownerships

Business shares and assets can complicate the estate planning process for business owners. In addition to usual estate planning issues, you now need to consider business partners, shareholder agreements, buy-sell agreements, and other business relationships.

Estate planning for business owners

What is an equitable vs. equal inheritance?

The difference between equal and equitable inheritance is that the latter considers beneficiary circumstances rather than just splitting everything exactly even. It’s a subtle difference that can go a long way in avoiding fights over estates.

Equal inheritance 

This is when the estate is split exactly even — everyone is given the same thing. This is easy to do if all the assets are liquid and if the beneficiaries want the same things.

Equitable inheritance 

This is when the estate is split with beneficiary circumstances in mind. It is not necessarily a monetary equal, but offers equal value.

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How can a business owner use life insurance for estate equalization?

A life insurance policy can provide the necessary cash to give each heir an equal share of inheritance. Those who want shares in the business get the shares. But, those who don’t can get the life insurance payout instead.

It works the same way for personal assets like family property. Not every family member will want all the assets in your property. You can leverage the payout from your life insurance to make sure everyone gets something.

Read our full Guide to Life Insurance for Business Owners in Canada
Estate Planning with Life Insurance

Estate equalization example

Here’s what effective estate equalization looks like in practice. Let’s say Joe runs a sole-proprietorship family business, but then he passes away.

  • Joe’s son wants to sell the business — he has his own company and can’t run both
  • Joe’s daughter wants to continue the legacy — she is passionate about it and this is her only job
  • This unexpected disagreement could cause legal disputes — this could negatively impact the business

Joe can choose either…

A Equal inheritance

Both the son and daughter get:

    • Co-ownership of the house
    • Co-ownership of the business
    • 50-50 split of Joe’s savings
    • 50-50 split of the life insurance death benefit

B Equitable inheritance

The son gets: 

    • The full amount of the life insurance payout (equal to the value of the business)
    • Co-ownership of the house
    • 25% of Joe’s savings

The daughter gets: 

    • Full ownership of the business
    • Co-ownership of the house
    • 75% of Joe’s savings

Estate equalization is the better solution in this case, because Joe’s assets were distributed equitably, not monetarily equally. This example shows how important it is to think about an equal vs an equitable divide in your estate planning — as well as the value of your business assets.

How does estate equalization with life insurance work in Canada?

To effectively use life insurance for estate equalization, you have to understand what your business assets are worth and ensure your death benefit coverage is an adequate match. You need to:

  • Establish your distribution plan
    This will include making a list of your distributable assets and deciding on details like when they will be distributed. Consider possible future heirs who may want a share of your assets.
  • Determine value of assets
    While establishing your plan, you may want to work with an estate planner or similar financial professional who can help you determine the likely valuation of your assets. You’ll need this information when you take out the life insurance policy.
  • Get coverage
    If you don’t already have coverage, you should buy a life insurance policy. During this process, your insurance advisor will provide policy illustrations that will show the expected death benefit. Use this estimate to determine how much coverage you need to balance out the value of other distributable assets, such as the family business.


Expert Tip

As a business owner, you can invest in a corporate-owned life insurance (COLI) plan. This is a policy that is owned and paid for by your company, but you would be the insured person. A COLI policy can help ensure the next generation can afford to buy your business if you pass away.

Help with estate equalization

PolicyAdvisor’s licensed insurance experts can help you better understand what insurance products may be best for your personal and business estate plan. Book some time with us and see how our insurance products can help you smoothly pass along your business legacy.

Frequently asked questions about estate equalization

Estate equalization and estate planning are related, but not exactly the same thing. 

✍️ Estate planning is the broader process of organizing and arranging your assets in preparation for distribution after your death. 

⚖️ Estate equalization is a more specific kind of estate planning strategy that ensures all heirs receive a fair share, even if not necessarily the same in terms of monetary assets.

Yes. Aside from life insurance, Canadian business owners can use the following types of insurance as part of their estate planning and finance protection plan — both for business and personal.


Critical illness insurance — provides a lump sum payout if you are diagnosed with a covered critical illness. It can help pay for any business losses you may incur while you recover from this illness. 

Disability insurance — replaces your income if you are disabled and can no longer work. This disability could be covered in the short term or for longer terms.

Long-term care insurance — can help pay for the cost of extended care at home or in a facility if you can no longer perform 2 or more daily living activities. It can preserve more of your business’ assets to pass onto heirs.

Remember, estate planning isn’t just about your death. It also plans for unfortunate circumstances, such as if you become incapacitated or disabled from a personal injury or illness.

Need help?
Call us at 1-888-601-9980 or book time with our licensed experts.

  • Estate equalization is a process where business owners fairly distribute their liquid and non-liquid assets
  • Life insurance offers monetary compensation for those who don’t want to inherit the business
  • Including life insurance in your estate plan will ensure that your business and family remain financially secure

By Jiten Puri
CEO & Founder, Insurance Advisor, LLQP
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