120. Corporate Tax Landmines In Canada with Henry Wong

You are listening to the Wealth Without Bay Street Podcast, a Canadian guide to building dependable wealth. Join your hosts, Richard Canfield and Jason Lowe, as they unlock the secrets to creating financial peace of mind in an uncertain world. Discover the strategies and mindsets to a financial future that you can bank on.

Have you ever stepped on a landmine before? If you have, you probably wouldn't even be watching this video right now. So what we're going to talk about today is how to avoid, how to avoid the tax landmine in retirement. Now, we're going to emphasize a little bit on, you'll hear the words corporate insured retirement program, but yet corporations don't retire, corporate owners do. And so we've got to talk about how to do this properly, how to understand what those potential landmines can be, how to make sure that we avoid them, and how to make sure that the corporate owner gets to enjoy retirement and to enjoy a lifestyle that he or she desires versus having to react to a very significant taxable event that could have been prevented to begin with. So we're just so pleased again to be joined by our teammate, the man, the myth, the legend, Henry Wong, who's an authorized infinite banking practitioner with the Nelson Nash Institute, also happens to be a chartered accountant. And of course, Richard Canfield, who's hailing from British Columbia. As always, gentlemen, welcome to the show. Let's dive right in. Let's have some fun. Henry, welcome back. You are becoming a very popular guest on our show.

All right, I'm glad and happy to be here. I love to share where I can, especially when, definitely when we go into practice and see these things. We want to be able to participate and kind of set the stage, set the, set things straight, I guess.

Well, and I will, I will share, too, with our listeners and our viewers on the YouTubes. Stay tuned because Henry is going to be a published author. Now, the book Keep Taxes Away from youm wealth is going to be launched in the third quarter. The manuscript's already done. When I asked Henry for the manuscript, he emailed it to me about 22 seconds later. So he's already got this put together and it's going to be incredible. He's got a wealth of knowledge to share, and so there's going to be a book. Just keep your eyes peeled for that because it's going to be amazing. We're obviously going to notify everybody who expresses interest in who's in our database, et cetera. So if you're not in our database, hint, hint, get in our database. So you can get notified of this. Henry, take it away. What are we talking about today? Let's, let's dive right in. Let's educate our viewers and our listeners.

Yeah, I mean, the first part in terms of setting the stage and what I want to share is just let's go back to the flow of capital. So when we, when I, when I joined here last time to talk about, you know, death for a corporate business owner, the basis was really to look at how capital flows. So I kind of touched upon that here, so I'll touch upon it again. But in this perspective, the basis of that discussion is, and like you mentioned, the corporation doesn't really retire. But what we want to understand is the corporation and individuals are, in terms of the Income Tax act, they're taxed as separate legal entities. So that's the first point that most people kind of may misunderstand if I own the business, but they don't realize that the corporation is also a entity that gets taxed. So when it comes to a corporate business owner, when they want to flow capital out of the corporation, which they are the shareholder to the shareholder, there will be taxable events that happen to that individual shareholder at their specific level. So depending on how you flow that money out, it will have different taxable consequences. So, for example, when you flow the money out in the form of a salary, you'll trigger different tax rules and tax rates compared to when you flow the capital out as a dividend. Salaries are typically taxed more unfavorably compared to dividends. Most business owners generally will kind of understand this concept. So, you know, that's in terms of flowing the money out. So. However, one of the rules that very few shareholders or business owners may understand is that by virtue of their position being where they are in their company, they can have benefits from their company. So those benefits as a shareholder, you know, it has to be so sorry, when benefits of a share have, they have benefits that other people won't have when it relates to their business. That's pretty logical, right?

Yeah, absolutely. And then as you mentioned, like with this, these two different tracks of, okay, I'm going to, I'm going to be paid a salary, so I'm going to be earning a T4 income and being taxed a certain way versus I'm going to get money out of the corporation in the form of a taxable dividend. And then since what was aptly named the theory of integration, or as I like to call it, the theory of let's take all the advantages away and just tax people to the maximum extent possible.

There, there's really it, for the most part, not really a whole lot of difference there. Now it's so, it's so close in terms of how much tax, you know, a person would actually pay. But of course that, you know, it's unique to an individual's circumstance and how they're put together, you know, financially. But when you introduce a corporate owned life insurance contract, a corporate owned dividend paying, participating whole life insurance contract, or a system of contracts, that opens the door to other avenues of the corporate owner, the shareholder gaining access to capital. Now, there are ways to do it where you can trigger a pretty remarkable taxable event, hence the term tax landmine, or you can follow the path of.

You'Re not avoiding tax, there's no avoiding it. You're going to trigger a taxable event, but you're going to mitigate it. And that's what we're really excited to hear more about from you today.

Before we jump in, Henry, I think it's really important that our viewers understand, you know, how this episode came to be. And this really actually started because a lot of our episodes begin with a client conversation or something that we hear about from a colleague or whatever. And so, Jason, you had a client conversation and you'd found out about an individual through happenstance that was about to initiate a contract with, with a different advisor. And nothing against any other advisors or anything here, but the, the premise by which they were taking that contract on was going to implement this landmine that we're about to talk about. Henry's gonna walk us through. And by having a good conversation, you know, we were able to pivot and mitigate that risk now by having a better clear understanding of how the tool can benefit him into the corporation and how he can use it eventually at the personal level in the most strategic way. And so I think it's important that our viewers recognize this, this landmine that we're going to learn about and how, how to mitigate it and how to prepare against it is really important. It's part of what coaching is all about and it's part of what working with expert advisors is all about. And sometimes there's people in the industry not, not, not because sometimes just a lack of awareness, they may not even know that they've recommended something that has this landmine. And I think that in the insurance realm, that actually can be very common because insurance professionals generally are not tax professionals and vice versa. So why we have Henry here, other than the fact that he's awesome is because he can bridge those two worlds together in the most efficient way.

Absolutely. You know, we've got. That's why it's so important to make sure that you're working with a group of experts that. That know what they're doing. And I will say, you know, shameless plug. I mean, at Ascendant, we have really assembled a pretty strong group of experts in that we have chartered accounting expertise on our team, trust and estate planning, chartered life underwriting, all of the designated strengths that you need to be properly advised so that you're. You're putting a structure in place that you have complete clarity on and that you understand what are the potential landmines here and how have we structured you in such a way to avoid those landmines? And so Henry, being just an amazing teammate, he's going to walk us through how to avoid these tax landmines. And when I had this conversation with that prospective client and he had just reached out to me to say, because I had offered within a group, a mastermind group, and said, hey, you know, just as a favor to the organizer of the group, I'm available as a sounding board. And this gentleman reached out to me and said, hey, I want to take you up on that offer. Can you have a look at when I'm contemplating doing. And the moment I saw it, I asked him questions. Can you walk me through with clarity what exactly it is you're about to do? He couldn't do that. And so when we identified these. These landmines, he. He immediately thought to himself, oh, my goodness, am I ever glad that I connected with you to have this conversation? Because this could have been a big problem.

And was it going to be a 7,7 million behind it problem?

Yeah, multi million dollar problem. And so we've prevented that. And not only is he grateful, but he's certainly glad that he took advantage of that opportunity to get connected with me in this case, because I just happened to be a part of the group in that discussion. But for anybody who's listening or watching, make sure you get connected with the right person on our team, because we've got all the expertise to bring to bear. So without further ado, Henry, take it away.

And so that landline that I want to talk about is shareholders will get benefits from their company. And the benefit is a shareholder can use their corporation in a position for their personal benefit. And if they're not careful, that's where they will trigger unfavorable taxable consequences. And so that landmine is specifically called a shareholder benefit. It's in the tax act. It's called subsection. It's in subsection 15. 1. So when it comes to those shareholder benefits, the first one, you know, people may not recognize this a little bit, but it's, it's a bit obvious. The first one is when the shareholder takes money out of the corporation in a form of a loan, just a regular loan. And the rule is, in a very simple way is if it's not repaid back in one year, that amount of that loan that has been outstanding is going to be included in the shareholder's personal income being taxed in a very similar way to a salary. So that means a little bit obvious. What we're going to talk about, and you guys have set the stage really, really well, is when it comes to, like our industry, the corporate business owners starting to look for retirement gets presented to them to set themselves up for retirement using what's called that corporate retired insurance program. In that corporate retired insurance program, there's two routes to choose from. One is through corporate borrowing, and then the other is through shareholder borrowing. And the strategy around shareholder borrowing is the one I'd like to talk about because this is the one that can land the shareholder into very, very troubling waters. And there are unfortunately, business owners and shareholders being presented with this option like you guys both very adamantly just shared. And the worst part is, can you imagine the worst part? Discovering the amount of taxes that one will need to pay. Because just of how it's set up, the worst is you get audited by the CRA and at death is when it's discovered. So at some point when that audit happens that you know, you don't know when it'll happen. But if that gets triggered in a time when you are actually in retirement, that's a very, very big problem.

Kidding.

So what I wanted to do is actually first set the stage and kind of show what corporate retired insurance program looks like. So let me just walk one thing.

You know, one thing too, Henry. You know who never gets invited to a funeral? Nope. Revenue Canada. I don't think they've ever received an invite to attend someone's funeral. And it's the last, the last, the last organization, representative of an organization that a person wants to see when they're dealing with the loss of a loved one or when a corporation is dealing with the loss of a key person, dealing with a loss of one or more of the owners. And so I think we just, again, we need to keep that into perspective. We want to keep taxes away and we don't want, you know, Revenue Canada showing up at the funeral going, we don't accept any substitutes for money. And we don't have much of a sense of humor either. So we're really sorry for the loss of your loved one. But if you can just go ahead and stroke a check, we'd appreciate that.

And here's what we determine the check should be. Now, for our listeners, you know, if you're on the drive and you listen to the podcast on, you know, Spotify or Apple podcasts, you're going to want to circle back to the YouTube video because to see Henry's diagram that he's about to show us here, because that's. You're definitely going to want to circle back to it.

Thanks. So the first one in terms of the corporate insured retirement program is the corporation buys the insurance policy where on the major shareholder's life, and names the corporation as the beneficiary. The next step that happens there is just kind of very quickly saying, in a corporation, they're going to have retained earnings from their net profits. And most of the time, owners will take that money to invest it in something passive, which will attract the high tax rate. So this is usually the explanations that say, well, let's use those surplus funds and use it to fund a policy. Nothing, nothing wrong with that there. Now, when the corporate owner now gets to retirement, they're going to now put this into a corporate insured retirement program where, you know, they're going to apply for a loan from the bank. So this is where this, the company, the shareholder, shareholder's company provides a guarantee for the loan and pledges the policy's cash value as collateral. So the, so this, the reason for doing that is to set up a loan from using the cash values as collateral to now fund the business owner's retirement as cash flows. And they can decide and depending how the underwriting works and how the loan terms are structured, they can, you know, access that cash flow. So the first one is the corporate borrowing. The corporate borrowing is the lending institution that they go with, lends directly to the corporation who owns the policy, owns the rights to the asset, the collateral, the life insurance.

And we put those arrangements together for clients. When you're working with large commercial banks that offer these types of arrangements, typically through private wealth divisions of the bank, organizations like Ascendant Financial have to be vetted. You have to be vetted before you can assist clients with these types of arrangements. And we're fully vetted.

And then the second one is what's called the shareholder borrowing. And that's the one that I want us to kind of drill in today to talk about. And this is when the lending institution lends directly to the shareholder. So the one who's receiving the loan proceeds is the shareholder, but the one who's collateralizing the loan as security. Because when you're a lender, you need to collateralize for security, they're going to do it to the company's cash values of the policy. So you know, in that corporate program like Jason mentioned, when it's set up with corporate boarding, the corporation will still access money from the loan and then they distribute the funds via a salary or a dividend. Again, the choice is up to the individual and for, for whatever reason they decide. Now when it comes to the shareholder in the shareholder borrowing, a very common, let's say strategy that people will do is they will say, you know, to get around this, we will use, let's have the shareholder pay a guarantee fee to try to mitigate that collateral benefit assignment to the company to guarantee the loan. So this is where again the potential, you know, landmine can be is what is a reasonable guarantee fee. And you know, I'll dive into a case study that, an actual case that has happened on using that guarantee fee. So you know, just going back to the corporate insured retirement program, how this, you know, makes sense is, you know, death occurs and the company's going to be paid a death benefit. So on that death, the death benefit insurance proceeds gets paid to the corporation tax free. And when it's set up properly again there will be capital dividend account, the funds will create the capital into the corporation. But you know, the proceeds are still going to be received by the corporation. And ultimately by having that increase in the capital dividend account, the corporation can distribute funds to the, you know, shareholder, a new shareholders or children, whoever in some in a form of tax free capital called capital dividends. So capital dividends can be declared tax free. So just going back to those loan proceeds that is received from, sorry the proceeds from the life insurance upon death of the business owner that is used to settle the debt. Usually people will use that to settle the debt. Well, here's where that problem comes to is well if they need to settle the debt from the option one corporate borrowing, how we set it up, very, very straightforward setup based on the underwriting parameters that are there but that this the part that gets sticky is well the money gets paid into the corporation, but the loan is owed personally by the individual, you have two separate entities where one receives the money. How is this all going to work out in terms of settling all that funds? Now there's also because that this is where kind of tying back to the shareholder benefit of using the collateral to get access to that loan amount personally. And that's where again the problem gets triggered. So when setting up the loan, the lending institution is going to ask for that guarantee. And what a shareholder then gets advised is that the shareholder pays their corporation that guarantee. And again, what's reasonable but a lending institution isn't going to look at whether you are tax compliant or not. That's not their role.

That's right.

The reasonable right. Their, their purview is really to see can they get guarantee for the loan that they're given. And to kind of tie this all together, I want to use a very prominent case that was shown in July 2016, so about six years ago. And the judgment on this case really set precedent on these shareholder borrowing arrangements with life insurance. Now unfortunately, not a lot of people follow these cases and because of that, it's disappointing to hear that there are some misinformed business owners being told to set up these shareholder borrowing situations with the misunderstanding that the taxes on the retirement cash flows will be lower. However, what you're going to see is that it's going to be a lot heavier. They're going to end up being in a position heavily exposed to huge tax bills. So the case that I'm going to walk through is called Galiti.

So yeah, really good information too up to this point. And.

You know, well, as you walk through this, we'll add a few additional things on the tail end of it as well. Because again, this is just really meant to ensure that people have access to resources like this to gain clarity before they decide what they're going to do and how they're going to proceed. The merit of the insurance contract that there, there's no downside to the corporation owning, paying for being the named beneficiary of dividend paying, participating whole life insurance. It's how to utilize the tool to achieve an objective of retirement income and to do it in a way that mitigates tax. And so this is this case that you're going to go through, Henry, is just a shining example of what can go wrong.

A key takeaway we want our listeners to have is that you may already have a policy set up in a corporation or you may have, you know, engaged in a conversation like this in the past and might be looking at doing it again or you're approaching the age where now you're looking at starting to take that retirement income using this strategy because it was put in place 10 years ago or 20 years ago. And so hopefully this message is finding you before you begin initiating that contract. And so we can limit how big of a landmine gets created by giving you the knowledge so that you could start making modifications before you start stripping out that, that income using this guarantee fee model.

So in terms of this case for Galini now it is pretty complex and I will try to decodify it or simplify it in a way but I want to walk through just the tax structure and what was kind of shown and this is all information that's in the case. And so the first part in terms of the situation that you see here, so there's an Ontario Inc.

Which is owned by the sun, the Galini junior and the father senior who owns two classes of shares, Class B and class C preferred shares for a total fair market value of 6 million. So that's kind of just the initial setup. So most business owners who haven't engaged professionals until a very mature stage will have, you know, they're directly owning the operating company. But you know, that's not the purpose of the conversation here, but that's just kind of letting you know what typically happens. Now the next thing that happens is well, Leany Sr. Is looking to retire. And so when he's looking to retire, what he starts now with is creating what's called a holding company which he owns. He, he incorporates a holding company which from that holding company he owns directly 100%. So that's in terms of that setup of that structure. The next part is this is where the tax professional comes in and basically is moving towards setting up, freezing the value of the shares to first disassociate the shares that are being held by Galini Senior personally to transfer it to the holding company without triggering tax consequences. So the, what the, what happens is they take the shares of the two class shares and then they transfer it to the holding company and it's again created tax free based on a specific value which you can see is $6 million. So it's, it's, there's an equation that follows through, but basically it's fair market value in for fair market value out. And to get that fair market value out to pay for those shares, what this Ontario company did, the OPCO borrowed money from a offshore bank that lends them $6 million to basically pay for those shares, which I'll Kind of explain after. So the Ontario company borrows money for the share, borrows money for the $6 million. And so since it borrows money from the shares, what ends up happening is now after the, they, they redeem those shares and basically move the money that was borrowed from Ontario to moved it to the holding company. And all, all this is general tax planning, structuring that's going on. But now there's $6 million sitting in the holding company. Now the holding company's in place. And, you know, some, some people will design life insurance. Sorry, with funds. They want to design it in a particular way. And so one of the ways that they will design using life insurance is the holding company takes the $6 million to fund an annuity that will pay $400,000 for 15 years or during the death of Lenny Sr. So they then use the $400,000 that they get from that annuity to purchase a life insurance policy. And again, the $400,000 is to match the amount of premiums that is being used to fund the policy, to build the cash values and essentially build the values in that policy. So not to go super complicated, there's a lot of other things that happen because of the size of the policy with reinsurance and everything along mitigating the risk and everything. But ultimately, you can see the complexity was it went offshore. There's some complexities with offshores, but to kind of really make things a little bit simple, you can kind of see the diagram, if you ever look at ends up being circular, where the stellar company who's the reinsurer, reinvest money into Trafalgar and then Trafalgar lends money to Metropac and then MetroPac lends money, 6 million back to Galini. Now, this is not really where the part that triggers everything. This is where it actually triggered everything. It's where Metro pack lends the 6 million to Galini Senior. Galini. And the way that the reason why Metropac would lend the 6 million to Gallini Senior is because the holding company had that cash value in the policy. So it's guaranteeing that loan of the 6 million. But this is again held by the corporation, not held by Galini Senior. So there is. He's using the collateral in his company to get the loan, and that loan is being paid with Galini Senior personally. And then from there, just to be able to say, I'm used, you know, to use your collateral company, I'm going to pay you a guarantee fee of $40,000. So kind of in, in a Real quick summary. The holdco obliged itself to pay for Galini's loan, including the capitalized interest through that assignment. But if you kind of look at all of this, let me just actually summarize that too.

Oh, actually, before I go into what happened there, or to summarize it, the Nash, the Minister of National Revenue essentially said, had a bunch of these tax ramifications. So five of them. And the biggest one here is in the alternative, the minister properly included the amount of the 6.3 million, 6.4 million as a taxable benefit in Paul Senior's income.

According to subsection 15 1, which is the shareholder benefit. So if I were to just kind of resummarize, and I'm just taking it straight from the case that shared with all of you is the hold go obliged itself to pay Delini's loan. So capitalizing in the interest through the assignment of the annuity and the insurance proceeds, and these are those selective quotes in the simplest terms, getting immediate Access for that 6 million loan, tax free cash flow via the loan with the obligation to pay a guarantee fee for four to 15 years. If you kind of look at it, that guarantee fee is basically $600,000 in exchange to get access to $6 million is a benefit arising from Delini's position as a shareholder and the benefit conferred by the hold code given. And this is where they say the inadequacy of the guarantee fee, the guarantee fee was not enough to enjoy the $6 million tax free cash flows that was received personally.

What's interesting, Henry, is that they're indicating it was inadequate, but they also don't tell you what would have been adequate.

No, there's quite a good amount of.

Kind of interesting.

It's always more, Richard. It's always more.

So, you know, the main points here is that there, there's an immediate Delini receives the immediate benefit because that $6 million was funded right away. And so if you're receiving that $6 million right up front, again, it depends on how the lending arrangement works, but this one was received right up front. So from that right up front, even though he's paying a $40,000 guarantee fee for 15 years, they are. They basically included the full 6 million into his income conferred as a shareholder benefit. Now, could you imagine what $6 million in taxable income would be at 50%?

Just a little bit, just a little off the top.

Pretty big migraine.

So in the essence of trying to set things up in, in the way that they were doing, it actually create a bigger problem. For that, for 6 million. Instead of, you know, a regular income draw which, you know, we designed during corporate, corporate borrowing. This was a big lump sum boom. Right, right there. And so that the, the key judgment here is Holdco has agreed to use the insurance proceeds from a policy it owns to pay off its shareholder debt. Collini relies on the fact that the Holdco remains a beneficiary of the insurance proceeds and then relies and Holdco has obligated itself to pay the proceeds to pay off shareholder benefit. So there's a benefit in place. Like would this company do the same thing for me? Of course not. So there's very, there's a very clear distinguishment between what a shareholder gets to benefit from for sure.

And you know, addressing the, I guess the, the factor of reasonable. So what is a reasonable shareholder guarantee fee? But it's more importantly being able to, if, if you're going to go down that route, if you're going to do the shareholder borrowing route and you don't have the right structure in place in terms of how to deal with it when the life insured dies. So I'll give you an example. We've got.

A million dollar loan balance. A guarantee fee has been paid over the past 20 years.

We've got a $3 million death benefit that's going to come into the, to the corporation. But there's a loan balance. Now when I say loan balance, I mean there's an amount owing to that commercial bank. It's not, we're not talking about a policy loan, we're talking about a collateralized loan. Death occurs. The insurance company writes two checks, one check payable to the bank and then for, for a million bucks and one check payable to the corporation for 2 million because we had a $3 million total death benefit. The moment that happens.

The entire amount that the shareholder borrowed is going to be added to their terminal tax return as income.

Unless.

You have additional collateral and you already have the arrangement in place with the bank so that the check that's issued by the life insurance company is for the entire $3 million payable to the corporation and the corporation has a promissory note to pay the bank what's owed.

If that didn't occur and the right planning wasn't in place and the additional collateral wasn't there sufficient enough for the commercial bank to say we're going to release our collateral assignment on this life insurance contract because we know we're going to be paid by the corporation. The corporation is going to pay off the balance owing and you are going to step on a massive tax landmine. And so again, it's, it. It just brings us back to the significance of getting connected, in this case, with the right people on our team to help you navigate through the planning process to make sure that you're doing this properly. Because the shareholder guarantee fee option is not an option that has been terminated or, you know, discontinued. But you've got to ensure that you're doing it properly. And that's why for us, we prefer to go down the route of corporation. We've got the loan arrangement with the commercial bank. The money comes into the corporation, the corporation issues a taxable dividend, or the corporation can still issue.

Income, the salary or, you know, some form of pay.

And what would you rather do? Would you rather.

You know, go down that route where you know what the taxable event's going to be and you know that it's being taken care of at source? You know that it's all.

Done above board within current tax laws.

Or still within current tax laws. Take the shareholder borrowing route, but fail to know or understand what we're describing, and then you've got a huge terminal tax event that. That could be, that it could throw the entire estate plan off the rails completely.

And something that comes up too, Jay, is that I think the reason that this is a timely episode that we're doing today is that there is, you know, there's a lot of popularity out there right now with corporate corporations looking for insurance contracts and, and putting them in place. And the advisor community, you know, they're given illustration software. Well, they tend to use it, and it has little gadgets inside that says you can produce an illustration that looks like xyz. Well, an option that you can choose is a shareholder borrowing option. But in the paperwork, there's a lot of fine print. And people don't often read that fine print, and they certainly don't know how to explain it to their client. And so a lot of times people will use those, that, that marketing component to show look at how good this retirement income could be. But it's misleading because it's not showing the true impact of the net result, which is after the tax bill is gonna get paid. And so just be very aware, again, that there's. There's education that is required for people to know how to. How to understand the way that this strategy works and how it doesn't work and where those. Where those pitfalls live and where it can go really horribly bad for the consumer. And the problem is, by the time it goes bad for the consumer. The person that ended up getting this, the contract and implementing that strategy, it's usually far too late to deal with it because we're talking about many years later where now all of a sudden CRA showing up probably at the funeral saying, oh, by the way, guys, hey, sorry to let you know, but here's a multimillion dollar tax bill we need you to, you know, just take care of for us. Can you, can you write us a check for that, please?

Not a good situation to be in and completely avoidable.

Yeah. And in Galini's case, they were very high profile professional service service firms engaged to architect the design and everything that was there. But the judgment ultimately comes down to that shareholder benefit. What, what if the shareholder defaults on the loan? Who's, who's on, who's on the hook? It's actually the corporation, not the shareholder. And what if the, what happens at, when the shareholder dies? And Jason, you kind of talked about, in order for the corporation to claim the death benefit, the financial institution has to release its security interest and they're not going to release their security interest unless the loan is paid off. But you know, the, the corporate business owner is not going to generally have those funds to do that. So.

That's right.

It's a very, very, that's where, you know, it comes down to just the crux of the details that, you know, what happens at death and what if the shareholder defaults on the loan?

The chicken or an egg situation right there, you know, oh, we need you to release the collateral. But wait a second, we're not going to release the collateral because then we're off to, you know, it's kind of like the bank needs their, they need their pound of flesh. And no, no lending institution is going to want to say, oh, you know what, don't worry. Bob said he's good for it. They got this promissory note, so it's all fine. No, they want to get paid. And if there's a huge outstanding balance with capitalized interest and multimillion dollar figure, they've been waiting, say 15 to 20 years to get paid. I'm pretty sure they're going to be a little bit stingy on releasing that collateral.

Yeah, that's why you've got to do the proper planning in advance and you've got to make sure that you've got the right agreement in place and that the lender understands that this is what is going to happen, that there's going to be collateral pledged so that the assignment can be released and the corporation promises to pay the balance owing and there's sufficient collateral in place if the corporation reneges on the deal and so on. And it's just any conversation that I've personally entered into that where we've involved tax professionals like Henry.

That just hasn't been reviewed, it hasn't been addressed. And the corporate owner's left in a position going, I didn't know that. And the banker looking at the deal too, to put things in place is saying, well, wait a second, like, you need to make sure that you understand what's going on here. And like Henry shared, it's not the banker's responsibility to be having conversations related to taxable events. It's the banker's responsibility to make sure that the loan is adequately collateralized and that they're following the bank's rules about here's the criteria, the do's and don'ts of who we lend to and who we don't lend to. Here's collateral that is within our criteria as being sufficient and suitable, and here's collateral that wouldn't be sufficient or suitable. That's why you need professionals like us to help you properly plan. Isn't that good, Henry?

Very good.

Man.

This was a great, great topic to discuss because, and we hope for folks on the YouTubes and on the podcast platform, if you're out there researching it and you came across us, you made the right decision to watch the whole video from start to finish. The next right decision is get connected with the right person on our team so that you have the right planning in place and the right things happen at the right time when you pass away at the wrong time.

Well, I'm, I'm excited that we got a really to do this topic because, you know, just that, that story, Jason, you shared, you know, at the beginning of our call and, and I remember it was a few months back when this, this all transpired. This business owner came to you with you know, an option in front of them to proceed with a strategy like we've outlined here today. And having absolutely no idea, I think they only had maybe what, two pages of an illustration to look at. They didn't even have a full, they didn't have all the information in front of them. They were about to make a very large financial decision without having all those, those components, hundred and a half thousands.

Of dollars, like we're talking significant annually.

Yes. And, and all doing it for, yeah, some intended purposes, although they, they'd approached, I believe, the individual around you know, implementing a strategy that they, they thought was going to be the infinite banking concept. And that's, that's certainly not what it was. It tended to being something completely totally different.

Yep.

And on top of that, also had this, you know, pitfall event, you know, tacked onto the back end of it. So it just goes to show that the more information that you dig into, the more you listen to things like our podcast, our client series, the other videos that we have on our channel at the bankers vault, these types of educational resources, Nelson Nash's book, becoming your own banker. If you have the source material and you're trying to figure out how to implement this strategy, well, first off, you can go to seven steps ca. There's a great little report tells you exactly what to do there. But if you're, if you have the source material, you'll be able to give things a sniff test right away to determine if it seems a little bit finicky. And I think that's really important. So, you know, kudos to everyone who's listening for, for being focused on your education and recognizing that there's always something new to learn.

Well, on that note, Henry, thanks again for another guest appearance on wealth without Bay street or as you've said in the new playlist that we're creating wealth without big government. I just love that.

Pleasure to be here.

And guys, let's make the rest of our week great. And to all of our viewers on the YouTubes, you'll see the playlist that shows up because of our amazing editing team. Continue your journey of learning. Always something new to learn, as Richard said. And for everyone on the podcast platform, thank you so much for tuning in. You made the right decision to do so. We're going to include some links in the show notes too. We'll update them once Henry's book is prime time and out there. And you'll be on a book signing tour and we'll share all the dates of the locations where you can meet Henry and get your book signed. But no, he's, he's just great. Thanks for being an awesome teammate, Henry, and let's have a great rest of our week, guys.

Yes. See you then.

Thanks for listening to the wealth without Bay street podcast where your wealth matters. Be sure to check out our social media channels for more great content. Hit subscribe on your Facebook favorite podcast player and be sure to rate the show. We definitely appreciate it. And don't forget to share this episode with someone you care about. Join us on the next episode where we continue to uncover the financial tools, strategies and the mindsets that maximize your wealth.