Do You Have a Succession Plan in Place?

“Exploring opportunities you may have to save tax or grow your wealth through early estate or succession planning may be the best New Year’s resolution you’ll ever make.”

I’m often approached by shareholders asking me about succession strategies. It’s a great question.  When I ask them what they have in place legally to transition their assets or corporate shares, they usually know there’s something in place, but don’t have a clear understanding of what it entails. It’s important to make sure you know what you have, what it’s for, and how it’s going to be funded.  Because if you do not know, then your family and successors will definitely not know.

Living for the Now, Working for Retirement

It’s not only retired shareholders who should be concerned. Indeed, many corporate shareholders aged 35 to 50 have wanted to talk to me about their succession plan.  They want to make sure there are no loose ends when it comes to the succession of their business assets.  In fact, when we demonstrate that estate and succession plans can also fuel current wealth accumulation and retirement planning, younger shareholders are very interested to learn more.

Where There’s a Will, There’s Another Way?

Most shareholders and high net worth clients start off with a discussion of their Will. While many shareholders already have Wills drafted, they don’t always have a clear understanding of what their Wills control and what is otherwise dealt with through other means. For example, property can be transferred upon the death of an individual in several ways:

• If you have a property held under joint legal rights of survivorship, the other title holder will generally receive that property upon your passing.
• If you have property that permits you to designate a beneficiary, the asset will transfer directly to that named beneficiary on your passing. This option is typically available through your RRSPs, TFSAs, Life Insurance, Disability Insurance and Critical Illness Insurance.
• If you own corporate shares, you likely have a shareholder agreement drafted which addresses the transition of those shares on a shareholder’s passing.

Any assets held by an individual that are not otherwise directed as noted above are likely subject to your Will. For many high net worth clients, this can include:

 Non-registered Investment or Savings Accounts

• Private Placement Investments
• Real Estate investments not held in joint title

The Big Three

Why review your succession plan?  If a shareholder passes away, you need to look at the three key taxes that an estate of the Shareholder should consider:

• Income tax consequences
• Probate fee consequences
• Property tax consequences

It’s imperative to know how much of these taxes are applicable, and what could be done in advance to reduce or eliminate these consequences.  In most circumstances, the aggregate tax of the Big Three can be very significant and punitive to your heirs.  You should consider the options available to your estate to finance or fund the Big Three.

A New Year’s Resolution!

Once your succession review is completed, you will be able to take positive steps to improve your succession plan:

• Update my Will?
• Add people as joint property owners with rights of survivorship?
• Amending or updating my beneficiary designations?
• Acquiring life insurance to fund the Big Three?
• Acquiring life insurance to fund a business partner buyout?
• Using permanent life insurance as a tool to assist an estate plan AND growth your wealth and future cashflows.

Any plans to update your succession plan should include consultation with your professional advisory team to make sure you understand the ramifications of the agreements you have in place and the planning you have available.

Marco Faccone, CPA, CA, CFP has long specialized in the area of corporately held insurance and estate planning, advising and assisting shareholders with succession and wealth accumulation strategies. Marco has worked alongside estate lawyers and tax accountants to offer his clients a professionally tailored and value-added plan. Contact MGF Advisory for more information regarding corporately held insurance and succession planning.

Categorised in: Business Planning, estate planning, insurance, investing

This post was written by Marco Faccone