Background
Daniel is the founder and sole shareholder of a manufacturing company that develops specialized parts for hockey rinks. The business has been booming and is expected to grow considerably over the next 5 years before Daniel’s retirement. Daniel is looking for advice about transitioning his business and planning for retirement. Daniel is married to Hyun, who is not active in the business.
Discovery
Although Daniel’s question initially related to transitioning his business, we uncovered many other important areas to examine through our discovery process and subsequent discussions with Daniel and Hyun. Not only did we need to understand Daniel’s business goals and their vision for retirement, but also Daniel and Hyun’s goals as a family. We learned:
- This was Daniel’s second marriage
- Daniel and Hyun have two children together. Their daughter, Helen (22) is in her first year of medical school and has never been active in the business. Their daughter, Grace (19), is involved in the business but isn’t sure if she will continue in the business.
- Daniel has a son, Andrew (27), from his first marriage. Andrew has never been active in the business. He has a successful career in New York.
- Even though Andrew isn’t in Canada that often, they all love spending time at the family cottage. Daniel and Hyun were concerned about the fairest way to keep the cottage in the family when they pass.
How we helped Daniel and Hyun with their IG Living Plan
Guide the family on wealth communication strategies
- We helped Daniel and Hyun introduce the estate planning conversation with their children. While it was initially uncomfortable for them, communicating their intentions clearly and ensuring they understood their children’s goals was critical.
Analyze different business succession scenarios
- We helped Daniel and Hyun understand their options when transitioning the business, including selling the business to a third party or transitioning the business to Grace.
- We explained the importance of working with their tax accountant to determine whether the lifetime capital gains exemption may be available and what the after-tax proceeds would be from selling their business under each alternative.
- We used the IG Living Plan to show them different sale scenarios and the impact on their financial plan.
Consider estate planning for blended families and non-resident beneficiaries
- We analyzed important considerations when in a blended family, to ensure Andrew wouldn’t be inadvertently disinherited.
- We clarified their estate goals while understanding the importance of engaging an experienced estate planning lawyer or notary in Québec to prepare a will for each client, especially someone with expertise with blended families and non-resident beneficiaries.
- We helped the couple understand the role that Powers of Attorney and Protection Mandate in Québec (for finance and personal care) play in the event someone becomes incapacitated and is unable to make their own decisions.
Explore vacation property succession options with multiple children
- We explored the most tax-efficient and equitable ways to pass on the family cottage.
- We illustrated the tax implications if Daniel and Hyun transferred the cottage during their lifetime or when they passed.
- Key questions included: Should they pass the cottage to one child or all children together? What are the potential pitfalls to consider if the cottage is transferred to more than one child?
Identify both Canada and U.S. taxpayer considerations
- Andrew’s U.S. connection was a factor to consider in the planning. We noted the importance of obtaining advice from a U.S. cross-border advisor to fully understand the tax implications, both from a Canadian and U.S. perspective.
Conduct an insurance needs analysis
- We discussed and illustrated the financial consequences of premature death, disability, or a critical illness, reviewed the couples current risk protection plan, and with our insurance team prepared an insurance needs analysis for Daniel and Hyun.
- We also discussed how permanent insurance can play an important role in wealth accumulation and estate preservation.
- Life insurance was key as it would help equalize their estate amongst the three children if the business is left to Grace or one child was to inherit the family cottage.
While Daniel is still several years away from retirement, he and Hyun now have greater clarity for their future and Daniel’s options with the business. Most importantly, Daniel and Hyun have strengthened communication and their relationship with all three children.
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DISCLAIMER: For illustrative purposes only. All situations described above are hypothetical and based on various client situations. Any similarity to any one individual person(s) is purely coincidental.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant. Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial Services Firm). Insurance license sponsored by The Canada Life Assurance Company (outside of Québec).