Plan Retirement, Your Estate & Corporate Succession with AWM
- Sharing Your Wealth with the Next Generation
- Financial Services
- Retirement Planning
- Estate Planning
- Corporate Succession Planning
Sharing Your Wealth with the Next Generation
Planning for the transition of wealth to your children and grandchildren doesn’t have to be a daunting task. It’s important to start discussing this now so you can understand the impact of tax on your estate assets and what steps you can take to plan for the future.
Let’s consider some of the tax implications. Upon death, a person is deemed to dispose of all their assets at fair market value which can result in tax (excludes your principle residence). However, there is an exception for assets rolled to a spouse. Assets that pass through the estate before being distributed to your beneficiaries are subject to probate fees. As well, there could be will challenges and known or unknown creditors that could reduce the assets and impact of your estate goal.
If you are concerned about the overall impact to your estate and objectives related to the disposition of your assets upon death, a life insurance policy with a named beneficiary can help alleviate many of those concersn. As well, investment assets can be transferred into an exempt life insurance policy and investment growth during your lifetime would not be subject to tax unless funds were withdrawn. This would allow capital to grow in a more effective manner and the insurance proceeds would add to the amount of capital available for your family.
Did you know that insurance proceeds are not subject to income tax? In addition, by designating a beneficiary (other than the estate) of the policy, the proceeds pass outside of the estate and therefore are not subject to probate fees. Additional benefits of designating a beneficiary are creditor protection and the beneficiary designation cannot be disputed through a will challenge.
Please note that new rules, coming into effect January 1, 2017, will not offer the same savings as policies issued before 2017 would so it’s important to take
action now.
Financial Services
Financial services start with the process of determining your financial goals, purposes in life, and life's priorities. After taking stock of your resources, risk profile and current lifestyle, our job is to create a plan to meet your objectives. We use your goals to map a course of action that will help you reach these goals.
We complete a personal financial review, help you set short- and long-term goals and agree on the right service that you’re most comfortable with. Financial services require require periodic reviews. Your life’s circumstances and goals constantly evolve. People get married and divorced. Children grow up. You could become ill, inherit property, or even die. Your family business could prosper or fail. Everyone’s life has an endless range of possible changes, and it’s our responsibility to keep your plan up to date.
In addition, the government regularly changes laws and regulations, including The Income Tax Act and every plan must undergo regular reviews to determine whether we need to update it.
A lack of regular reviewing, monitoring, and updating could jeopardize your financial plan. By keeping you abreast of all relevant changes, you’ll be better equipped to achieve your objectives. That is the value that we bring to the table.
Retirement Planning
Retirement planning is about making sure you have sufficient financial resources to retire comfortably. According to the Fraser Institute, most Canadians are significantly underfunded to retire comfortably at 65. Although it should be a priority for everyone, most people tend to put it off.
In essence, there are two ways to achieve retirement planning: individually or through your company. First, if you're an individual or small business owner you have access to Registered Retirement Savings Plans (RRSPs), defined contribution pension plans, individual pension plans (IPPs), and other unique tax-deferral methods. Second, if you're an employee you also can buy RRSPs, our unique tax-deferred products and a defined benefit pension plan if you're a member of such a plan.
Estate Planning
Estate planning isn't just about what happens after you pass away. We help make sure your estate gets used and distributed only in the ways you intend both before and after your death. We can help ensure your estate provides the desired level of benefits to you and your loved ones by maximizing after-tax incomes and the build-up of estate assets.
We work with you and your attorney to properly execute all required contracts and documents. And we'll constantly update your estate plan to take into account all changes in personal and family circumstances, as well as any changes in
estate law.
Corporate Succession Planning
Most small to medium-sized business owners plan to retire within the next decade, and yet surprisingly few have much of an exit strategy in place.
The Canadian Federation of Independent Business has some eye-opening statistics. Within the next 10 years, 71% of small to medium businesses plan to exit ownership, with 41% planning to leave within five years. Retirement is the driving force behind this coming ownership exodus, even though 65% of these businesses don't have an exit strategy. And for the one-third of businesses that have an actual plan in place, most of those plans are informal.
Having an exit strategy in place well in advance yields significant benefits for current business owners. While some benefits may be financial, several non-financial benefits also arise and include an improved relationship with employees and family members involved in the business.
Many business owners assume that when they want to retire, a willing buyer will appear with the cash to write a cheque for the full value of the business. In reality it's more likely that:
- The buyer won't have cash
- The buyer will haggle over price
- The buyer will want the seller to continue working for a period of months or even years
- From a tax perspective, whatever is advantageous for the buyer will be a disadvantage to the seller and vice versa
The entire process likely will end up as a series of comprises.
Planning Steps to a Successful Exit Strategy
- Identify Potential Buyers
- Other shareholders
- Employees
- Family members
- Outsiders
- Competitors
- Sell Shares of Assets
Typically, the vendor would prefer to sell shares whereas the buyer often would rather buy assets. The tax results will be different. Some of the factors to consider include:- Does the corporation qualify for the small business gains exemption which could provide up to
- $500,000 of capital gains on a tax-free basis? Should we crystallize the exemption now?
- If the corporation does not qualify, what needs to be done to "purify" it so it does qualify?
- How can the small business gains exemption be multiplied?
- Is there an opportunity to generate tax-free "safe income" dividends?
- Is there a large amount of Refundable Dividend Tax On Hand (RDTOH) that might help reduce the tax cost of getting funds out of the corporation?
- Are there any tax-free capital dividends available?
- Reducing Business Value
Are there ways of reducing the value of the business to make it easier to sell and, at the same time, provide a secure source of income to the retiring shareholder? Some planning strategies might include:- Transfer cash/investments and non-core business assets from an operating company to a personal holding company
- Establish an Individual Pension Plan (IPP) and/or a Retirement Compensation Arrangement (RCA) to have your company finance your pension on a tax-deductible basis
- Have your company pay you a tax deductible retirement allowance to supplement your RRSP
Shareholder Buy-Out Triggering Events
- Buy-Out at Death
The death of a shareholder is an event that is usually unpredictable and causes the most disruption. In most situations, it's desirable to buy out the deceased's interest to avoid having the family as partners and to leave the remaining shareholder(s) in control.
Planning for the purchase and financing of the buy-out can be covered by life insurance. - Living Buy-Out
A living buy-out is any sale of a business during the life of a shareholder.
The main events that would trigger a "living buy-out" include:- Sales for Disagreement, Incapacity, Bankruptcy
These are unpredictable events and planning for the purchase and financing can only be done in the most general sense. - Disability or Poor Health
A sale of a business or shares as a result of poor health is also an unpredictable event but the financing can be covered to some degree by disability/critical illness insurance. - Retirement Buy-Out
How does a retiring shareholder or business owner realize on his/her investment?
The sale of a business or shares due to retirement is an event which can and should be planned for; regardless of one is retirement age.
- Sales for Disagreement, Incapacity, Bankruptcy
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