The succession or transfer of your business may not appear to be a priority today, however, a lack of planning could result in significant financial problems.

According to a 2006 Canadian Federation of Independent Business survey, slightly more than one third of independent business owners plan to exit their business within the next 5 years, and within the next 10 years, two thirds of owners plan to exit their business. The survey also found that small and medium sized enterprises are not adequately prepared for their business succession: only 10% of owners have a formal, written succession plan; 38% have an informal, unwritten plan; and the remaining 52% do not have any succession plan at all. The results are backed by a 2004 CIBC survey which suggests that succession planning is increasingly becoming a critical issue. By 2010, CIBC estimates that $1.2 trillion in business assets are poised to change hands.

It is important that the succession planning process is started early because it takes time. Some business owners delay the process because they think they are too busy or feel that it is too costly. Other business owners are unaware that there is even a problem. Succession planning may also be avoided or delayed because of the potential for emotional issues, such as facing retirement/mortality, dealing with family conflict, and the feeling of losing control.

Many Canadians feel obligated to provide for those less fortunate. Sometimes they prefer to leave gifts behind after death, or perhaps donate during their lifetime.

There are many ways Charitable Donations can be made, and there are associated tax consequences of each asset to be gifted. We can work with you to help fund the right solution and strategy.

Will Planning:

The importance of having a properly drafted Will cannot be overstated. Dying Intestate effectively gives the government all decision making power over the distribution of your assets. Their decisions may not coincide with your wishes. Although we do not offer Will planning services directly, it is often referenced in our work. We can refer you to Law Firms and/or Notaries in your community as required.

Probate:

Did you know your that your Will and any assets referenced therein becomes a public document after death? Would you want distant family or strangers knowing about everything you have?

An important area of Estate and Succession Planning is ensuring the smooth transition of your assets, according to your wishes, and to ensure prying eyes are kept away. Having assets in Joint Ownership, investments with the right financial institution, and properly named beneficiaries are but a few ways you can mitigate Estate Settlement issues.

In addition, the Probate fees associated with assets passing unnecessarily through your Will can be significant, and are avoidable in many cases. It is important to obtain the correct legal advice as each circumstance is unique.

Here’s the Problem…

Like many Canadians, your financial plan may include an element of savings that you never plan to spend. You have invested some money that you intend to pass on to those you care about most. The problem is this strategy’s success is largely based on the investment’s rate of return. And, unfortunately, the higher the return, the more tax you pay. This means your estate may end up smaller than you’re anticipating.

What Are Your Options?

You can continue to pay tax on the income earned from your savings or you can invest the funds using a financial planning strategy known as Estate Bond. This attractive alternative to taxable investments offers:

• A large, immediate estate value
• Tax-sheltered growth of cash values
• A tax-free maturity value at death
• Reduced estate settlement costs, if you’ve named a beneficiary

The Estate Bond Solution…

The Estate Bond moves savings from a tax-exposed investment to an exempt Life Insurance policy. A Life Insurance policy provides immediate protection and an investment within the policy that accumulates on a tax-deferred basis. When you die, your heirs receive the proceeds tax-free. When you take advantage of the Estate Bond financial planning strategy, you not only increase the size of your estate, you also reduce the amount of tax you pay.

One of the challenges for a business or large estate is how to equalize the distribution of assets among the beneficiaries or heirs. As an example, what if one beneficiary wants to own and operate the family business (where the bulk of the net worth may be), yet the other 2 siblings who have no interest in the business still want their equal share.

Will the business have to be sold, will one adult child need to borrow significant sums of money just to buy out the other siblings? These are concerns that need to be dealt with sooner rather than later, otherwise it may result in unfair distributions, up to and including the sale of the business.