Legacy planning looks at distributing personal and business assets today or in the future to create a lasting family legacy. This could be upon retirement, death or actual sale of the business. Estate equalization can be critical for ensuring family harmony over the long-term as fair does not always mean equal.
For business owners, life insurance can be a critical component to a well-developed succession plan. If the intention is to pass the business to the next generation, life insurance proceeds can be used to pay the tax liability on corporate shares, ensuring that the business assets need not be sold. Additionally, insurance can be used to provide the necessary funding for the next generation to purchase shares from the estate in a tax-efficient manner.
Leaving a lasting legacy can be achieved a number of ways and understanding how this works best for the family and the business requires careful consideration and reflection on more than just numbers. Contact your Scotia Wealth Management relationship manager today for a complimentary consultation with our Business and Family Advisory Specialists who work with business owners and affluent families to help with the transition of wealth to the next generation.
Some of the solutions we offer include:
Business transition planning
Our approach to business transition planning takes into account your personal and business specifics and will be designed to reflect your overall wealth management strategy. From recognizing and reviewing your personal priorities to identifying a successor or buyer, Scotia Wealth Management professionals will work with you and your advisor to help you develop a transition plan that is smooth and advantageous.
Our specialists understand the challenges, issues and complex needs of business owners and affluent families and are experienced in helping them manage this intricate process. We will offer guidance and assistance around continuity of business ownership, family dynamics, contingency plans, tax-efficient structures, integration of personal and business wealth, and legacy plans, all with the end-goal of you getting what you want out of the business you’ve worked so hard to build.
When planning for the succession of your business, it is common to be faced with the issue of not all of your children being equally interested in carrying on the family business or perhaps not all of your children having the skills necessary to manage the business to ensure its prosperity. As a business owner, if you are faced with either of these situations, it is likely that you will still want to treat your children fairly when it comes to leaving an inheritance. Estate equalization strategies help ensure that your estate will be distributed the way you choose. Life insurance can be used to provide an equitable inheritance to those children who are not active in the business, allowing the business to be passed entirely to the child(ren) actively involved in the continuation of running the business.
A permanent life insurance policy would be purchased by the corporation who would own the policy. The policy could be structured on either a single or joint life basis. Premiums for the policy could either be funded by reallocating passive investment assets held inside the corporation or by using excess cash flow not required by the corporation. At the death of the insured(s), the life insurance death benefit would pay out a tax-free death benefit directly to the corporation. The corporation would receive credit to its capital dividend account (CDA) for the amount of the insurance proceeds minus the insurance policy’s adjust cost basis (ACB). Capital dividends can then be paid out tax-free to the owner’s estate.
The corporate asset transfer strategy provides a way to diversify the corporation’s current asset mix in a tax-efficient way, significantly increasing the net estate value.
A properly implemented estate freeze will allow you to defer the taxes payable on the accrued gain on the shares of your corporation and transfer the future growth of your business to your beneficiaries. By capping the capital gains on the transferred business/property, insurance-based solutions can be utilized to fund it without having to liquidate other assets. It is a popular tax and succession planning strategy.
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