CFO of a public company – What legacy will they leave behind?
How we can help
Background
Nancy and Ken are in their early 50s and have two adult children, Justin (23) and Evelyn (19). Nancy is the CFO of a public company. Her compensation consists of a salary, employee stock options and restricted stock units (RSUs). Nancy has accumulated a significant number of shares in the company and recently sold some of her shares resulting in proceeds of about $5 Million. Nancy plans to sell the remainder of her shares in the next 3-5 years for approximately $10 Million (based on today’s valuation of her company) and retire. Ken is an artist and homemaker without any taxable income.
Discovery
Although Nancy and Ken were initially concerned about understanding Nancy’s compensation as well as developing a retirement plan, we also learned they:
- Plan to renovate their home in Toronto for $1 Million and plan to purchase a cottage for $1-2 Million in the next few years.
- Want to transition their wealth to their two children upon their passing but worry about the best way to transition such a large sum of money.
- Are considering making a $1 Million donation to their favourite charity but aren’t sure of when to make the donation - during their lifetime or on their passing.
How we helped Nancy and Ken with their IG Living Plan
Identify tax implications of different forms of executive compensation
- Outlined the tax consequences of Nancy’s different forms of compensation such as her salary, employee stock options and RSUs, and included each form of compensation into their financial plan.
- Outlined the tax implications of employee stock options in the year they are exercised and in the year the shares are sold. We discussed the stock option deduction that may be available if certain conditions are met.
- Discussed income splitting opportunities, including utilizing a portion of the share sale proceeds to fund a prescribed rate loan either directly to Ken or to a trust for the benefit of Ken, their children and future generations. We outlined the necessary requirements and ensured the couple were working with an experienced lawyer.
Prepare a comprehensive long-term financial plan
- Included income, as well as outflows for home renovations, their cottage purchase, and other expenses
- Modelled how Nancy’s share sales would impact the family’s cash flows, taxes, and overall net estate.
- Reviewed tax-efficient investment strategies in conjunction with the family’s risk profile to help meet their short and long-term objectives.
Recommend the most equitable way to transition wealth to the children
- Helped Ken and Nancy clarify their evolving estate planning needs and key tax planning implications.
- Reviewed their current wills and provided recommendations to ensure their estate plan properly reflected their objectives.
- Discussed the benefits of considering trusts in their testamentary planning.
Determine how to give to charitable organizations in the most tax-efficient way
- Explained how to maximize their charitable giving in a tax-efficient way as their wealth and charitable intentions grow.
- Discussed the benefit of donating publicly traded securities, such as stocks and mutual funds, with large accrued capital gains.
Conduct an insurance needs analysis
- Illustrated the financial consequences of premature death, disability, or a critical illness, reviewed the couple’s current risk protection plan.
- Prepared an insurance needs analysis with IG’s Insurance Specialists.
- Examined how permanent insurance can play an important role in wealth accumulation and estate preservation.
Ultimately, we helped Nancy and Ken create a comprehensive financial plan, understand Nancy’s different forms of compensation, and take key steps towards clarifying their estate planning objectives. We worked with Ken and Nancy to minimize the family’s overall tax bill and align their planning with their philanthropic, investment and personal spending goals.
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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).