Estate Liquidity: How Will Your Family Pay the Tax Bill?

In short

At death you're treated as having sold everything you own at fair market value, including the shares of your corporation.
The tax is due in cash, usually within months. The value is often tied up in a business, a building or a portfolio.
There are four ways to fund it: savings, selling assets, borrowing, or life insurance.

How the bill arises

Canada has no inheritance tax. It has a deemed disposition: on death, you're treated as having sold your capital property at its market value. The gain goes on your final tax return.

A spouse defers it. Property left to a spouse or common-law partner can roll over at cost. The tax then falls due on the second death.
Private company shares are often the largest item. A company that has grown from nothing has a gain almost equal to its value.
There can be a second layer. When the corporation's assets are later paid out to the family, that can be taxed again as a dividend unless your accountant does post-mortem planning to prevent it.

A simple example

An Ontario owner dies holding shares of a holding company worth $3,000,000, with a nominal cost. Half the gain is taxable. At the top Ontario rate that is roughly $800,000 of tax on the final return, before any planning.

The holding company's assets are a commercial building and a long-term investment portfolio. The family has to find $800,000 without selling the building in a hurry.

Four ways to fund it

Option	What it costs
Cash set aside	100 cents on the dollar, and the cash earns little while it waits
Selling assets	Timing is forced. The sale may trigger more tax and may be at a poor price
Borrowing	Interest, and a lender willing to lend to an estate
Life insurance	Premiums over time, in exchange for cash that arrives when the tax does

An estate freeze is often used alongside these. It fixes the value of your shares at today's level and passes future growth to the next generation, so the bill stops growing. It doesn't pay the bill that already exists.

Won't my family just sell the business?

They may want to, and a planned sale can work well. The problem is timing. Tax on the final return is due within months, while selling a private business or a building well can take a year or more. Liquidity planning is about giving your family the choice of when to sell, or whether to sell at all.

Who it fits, and who it doesn't

A reasonable fit if

Most of your net worth is in private company shares, real estate or other assets that are slow to sell
You want the business or property to stay in the family
You have business partners and a buy-sell agreement that needs funding
Your spouse is likely to survive you and the bill will land on the second death

Probably not for you if

Your estate will hold enough cash and liquid investments to pay the tax comfortably
You plan to sell the business in your lifetime and will hold the proceeds personally
Your assets have little unrealised gain

Run your own numbers

Estate Tax Exposure Calculator. Estimate the tax bill your estate could face on your corporation at death.

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Questions to ask your accountant

What would the tax on my final return be if I died this year?
Is there a second layer of tax on my corporation, and what post-mortem planning would you use?
Would an estate freeze make sense now?
Does our shareholder agreement say how a deceased partner's shares are bought, and with what money?

Related guides

Figures are current as of 2026 and are general information, not tax, legal or investment advice. Rules and rates change, and how they apply depends on your facts. Confirm anything here with your accountant before acting. Dundas Wealth is an insurance brokerage (Dundas Life Inc., FSRA #37628M). We are paid by the insurance carrier if and when a policy is placed.