Transcript Successful Succession - Kawartha Family Business Group

Smart Succession Is Possible!
The Protectors Group Can Help
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The Guide
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The Motivator
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Kawartha Family Business Group
3 March 2008
Sales People Help People Make Decisions
Sales People Are Persistent
The Coordinator
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Help Clarify Objectives
Help Organize Resources
Find Efficient Methods To Match Resources To Goals
Familiar With The Roles Of The Professionals Involved
Know Where The Overlaps And Conflicts Will Arise
The Communicator
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Objective
Skilled At Reporting, Speaking, Presenting
Simple And Direct
Contact Us For A Confidential
Discussion About The Possibilities
Don Shaughnessy
The Protectors Group
215 George Street North
Peterborough, Ontario, K9J 3G7
705-748-5181 X225
[email protected]
Kawartha Family Business Group
3 March 2008
Terry Windrem
The Protectors Group
215 George Street North
Peterborough, Ontario, K9J 3G7
705-748-5181 X218
[email protected]
Smart Succession
Matters
Notice
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Not everything applies to everyone
The material is intended to provide a basis for
discussion with professional advisors familiar
with your particular situation.
The material presented is a tiny fraction of what
is important
This material is not, and should not be treated
as legal, accounting, tax or business advice.
Smart Succession is not restricted to family
transition only. It can also apply to a sale to
employees or even to unrelated 3rd parties
Kawartha Family Business Group
3 March 2008
Smart Succession Matters
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Kawartha Family Business Group
3 March 2008
To You
To Your Spouse
To Children Who Own The
Business
To Your Other Children
To Employees
To Customers
To Suppliers
To The Community
To Charities
To The Government
9 Elements Of
Smart Succession (In Order)
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Mom & Dad Have All The Money They Need
Children Can Run The Business Successfully
Business Has Capital To Grow And Prosper
Children Live Longer Than Their Parents
In-laws Are No Problem
No Unforeseen Cash Drain Arises
All The Paperwork Is Valid And Complete
The Estate Has Enough Liquidity
Estate Provides Equitable Shares For All
Kawartha Family Business Group
3 March 2008
Smart Succession
Is Tough Stuff
► Some
Elements Conflict
 Cannot Invest & Spend The Same Dollar
► Some
Elements Are Not Controllable
 Health, Time Of Death, Order of Death, Economy
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Things You Know Will Change
 Spending, Interest Yields, Maybe Taxes & Fees
► Some
Things Are Hard To Fix Later
 Freeze & Thaw
► Some
Possible Events Are Catastrophic
 Successor Child Dies First
Kawartha Family Business Group
3 March 2008
Planning Helps
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Minimize The Effect Of Conflicting Goals
Discover Previously Unforeseen Opportunities
 Reduce Income Taxes, Estate Costs
 Efficient Capital Provides Efficient Income
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Provide Flexibility
 Including for catastrophes
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Provide A Creditor Proof Structure
Use Redundant Capital Effectively
 Reposition Seasonal Cash Flow
 Invest For Better Yield
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Use Leverage Effectively
 Borrow For The Peaks
 Use Back To Back Loan Structure
Kawartha Family Business Group
3 March 2008
What We Do
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Clarify Objectives
 Retirement Cash Flow
 Security
 Children Succeed
 Equitable Estate
Organize Resources
► Relate Your Situation to “THE SYSTEM”
Find Efficient Ways To Join Your Resources, The
System And Your Objectives
► Integrate Your Plan With Successors’
► Co-ordinate With Other Professionals
► Communicate
► Review & Follow-up
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Kawartha Family Business Group
3 March 2008
Some Planning Areas
► Efficient
and Safe Income
► Minimize Capital Commitment To Get
The Retirement Cash Flow Answer
► Shed Catastrophic Risk
► Use The Income Tax Act To Advantage
► Good Money, Bad Money Issues
► Compartmentalize Problems And
Solutions When Possible
Kawartha Family Business Group
3 March 2008
Some Obvious Plans
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Efficient Ways To Get Spending
Money & Make It Independent Of
Business Success
 IPP, RCA, RRSP, Holding Company
► Minimize
The Tax Drag
 Corporation Pays First or Maybe No One Pays
Kawartha Family Business Group
3 March 2008
Avoid Systemic Costs Where Possible
►Example
- Tax Clawbacks
 For someone 65 or older, the government claws back
various benefits and exemptions based on income.
By $65,000 they have taken back 9.
 The 10th Is The OAS Clawback
► From income of $65,000 to about $110,000 you
lose an extra 8.5% to the government. More like
13% of cash dividends but only to about $90,000
Kawartha Family Business Group
3 March 2008
Notice That Income And Cash Flow
Are Not The Same Thing.
► You
Spend Cash Not Income
 Drawing Down A Shareholder Loan By $20,000 Per
Year After 65 Gets The Same Answer As Taking
$45,000 From An RRSP
 Drawing Down An RRSP Before 65 Sometimes Is
Better Than Leaving It
Kawartha Family Business Group
3 March 2008
Know The Rules
CPP Systemic Cost
You Are 59 Now And Have Contributed At
Maximum for 42 years.
(More complex for females with children)
 Paying $4,000 Each Year From Now To Age 65 Will
Increase Your CPP Monthly Benefit At Retirement By:
 Zero Dollars Per Month
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You Are 60 And retired 6 years ago you
can have 70% of maximum now or about
87% at 65.
 Give up $40,000 for an extra $1,900 a year later won’t
breakeven in 20 years.
Kawartha Family Business Group
3 March 2008
Some Planning Is Not Obvious
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Secure Shareholder Loans & Pay Interest
 Interest does not attract EHT
 Protect Accumulated Values
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Have Your Corporation Pay For Whatever It Can
 Including Non-deductible Expenses
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Have Many Wills
 For Example: Ontario Business Shares, Ontario General Assets,
Possibly Wills For Several Other Jurisdictions
 Avoid Probate Costs
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Leave Everything To Trusts Not To People
Use Current Income Taxes Payable To Provide
Estate Liquidity And Late-life Emergency Capital
Uses Riskless Leverage To Reduce Cost
Some EI cost are unnecessary, some WSIB
Kawartha Family Business Group
3 March 2008
Start Now
► Get
A Head Start
 Some Things Take Time To Mature
 Henry Ford Started Planning His Estate On His Death
Bed. 90 Days Is Not Long Enough
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Be Flexible
 Harold Ballard Started His Plan 20 Years Before His
Death. Unpleasantly, The Plan Only Lasted 11 Years.
The Tax Cost To Fix It Was More Than $15,000,000
Kawartha Family Business Group
3 March 2008
Seek Help
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Each Profession Has Something To Contribute.
None Can Deliver It All.
Professional Objectivity Helps
Your Time Is Better Spent Otherwise
You Need A
Guide/Motivator/Coordinator/Communicator
You Are Going To Do This Only Once So You
Won’t Learn Much From Experience
If At First You Don’t Succeed
 Don’t Build Your Own Succession Plan
Kawartha Family Business Group
3 March 2008
Some Succession Plans Fail
► They
get to be like the City’s
Official Plan
 Meant to be filed not implemented
► Biggest
impediments to effective
Implementation
 People don’t know where to start
 Might force discussion of unpleasant facts
 It is not urgent
Kawartha Family Business Group
3 March 2008
A Good Observation
The Urgent Is Seldom Important
And
The Important is Seldom Urgent
Kawartha Family Business Group
3 March 2008
Document and Communicate
► Wills
► Powers
Of Attorney
► Business Agreements
► Estate Inventory
► Succession Is Part Of An
Estate Plan
► Family All Know The Plan And
Each Has A Part To Play
Kawartha Family Business Group
3 March 2008
We Can Help
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The Guide
 Help Clarify Objectives
 Help Organize Resources
 Find Efficient Methods To Match Resources To Goals
► The Motivator
 Sales People Help People Make Decisions
 Sales People Are Persistent
► The Coordinator
 Familiar With The Roles Of The Professionals Involved
 Know Where The Overlaps And Conflicts Will Arise
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The Communicator
 Objective
 Skilled At Reporting, Speaking, Presenting
 Simple And Direct
Kawartha Family Business Group
3 March 2008