Post-mortem planning addresses the potential double taxation that can arise when a shareholder of a private corporation dies. At death, the deemed disposition rules tax the accrued gain on the shares. If the corporation later distributes its assets, the same value can be taxed again as a dividend — once at the share level and once on extraction.
The two principal techniques used to relieve this are the loss-carryback election available to a graduated rate estate and pipeline planning. The loss-carryback approach redeems the shares to create a loss that offsets the terminal-year gain, while the pipeline approach extracts surplus as a capital repayment. The capital dividend account and the timing rules for a graduated rate estate are frequently central to choosing between them.