Succession Planning with Legato
Published in August 2019 by Don Anderson
Your clients have been investing in British Columbia for the past 10 to 30 years, perhaps more. They've worked hard. The steady monthly income and capital appreciation of their income properties or family-owned business provide financial security for their foreseeable future. Now, it's time to help these entrepreneurs plan for the succession of those assets to the next generation.
As their estate lawyer, tax accountant or financial advisor, you're in a position to play a critical dual role – both as coach and driver.
On the financial side, every succession plan should address the issue that taxes that will be due from the capital gains of all their deemed disposed assets: property, investments, and business ownership, in the estate of the second parent to pass.
Professionals, come work with us at Legato to help your clients create effective, affordable succession plans and actually put them in place. They deserve it. :-)
Don Anderson
Legato
Full disclosure, we are funding our own succession plans through personal and corporately held Legato plans.
As their estate lawyer, tax accountant or financial advisor, you're in a position to play a critical dual role – both as coach and driver.
- As a coach, you can guide the business owner to formulate a plan, including the navigation of often delicate topics such as leadership, personal goals and succession objectives.
- In the role of a driver, your leadership can ensure that all the components fit together. By reviewing the tax and legal implications of their various investments, life insurance policies, shareholders agreements with the other professionals, including Legato, you can help your clients actually implement the succession plan.
On the financial side, every succession plan should address the issue that taxes that will be due from the capital gains of all their deemed disposed assets: property, investments, and business ownership, in the estate of the second parent to pass.
- Under current tax rates in British Columbia, up to twenty-five percent (25%) of the capital gain of all assets may need to be remitted as taxes to the Canadian government.
- As an example, a family-owned business that has grown from nothing to a $6.0 M valuation will result in approximately $1.5 M in capital gains taxes due by that estate of the second parent to pass.
- Note that the full value of all RRSP investments is also deemed disposed in the estate of the second parent to pass, meaning up to 50% of the value of that RRSP portfolio would be due to the government as another tax payment. This tax expense is commonly an unfunded liability to the estate.
- The tax exemptions and dividend credits that define each Legato plan can drive significant monies into the estate on the passing of the second life insured. That valuable liquidity can be used to cover estate expenses and taxes due, thereby eliminating the need for the disposal of any estate assets. The resulting smooth transition of the business, real estate and investments to the next generation would mark a succession plan well designed and implemented.
Professionals, come work with us at Legato to help your clients create effective, affordable succession plans and actually put them in place. They deserve it. :-)
Don Anderson
Legato
Full disclosure, we are funding our own succession plans through personal and corporately held Legato plans.