Business Owners

Client profile:

Jane and Ethan run a family business originally started by Ethan’s parents. They are both 43-years-old and have three young children. They each own TFSAs worth approximately $145,000 and have $180,000 accumulated in an RESP for the kids. Jane has RRSP assets of around $230,000 and Ethan’s RRSP is worth just over $300,000. They own a home and a beach house with minimal debt left. Both Jane and Ethan bought 10-year term policies with $1M in coverage each that recently automatically renewed after 10 years at much higher premiums. The company has been performing well in recent years averaging $450,000 in cash flow per year, but they are concerned about the risk of the business slowing down. The business has accumulated over $600,000 in investments through the holding company.   

Issues to address: 

  • Ethan and Jane would like to make sure their kids’ futures are secure if something were to happen to them. 

  • Their previous advisor did not efficiently tax allocate investments across different account types and ownership. 

  • They want to transfer wealth to their children in a tax efficient manner and avoid costly probate fees at death. 

Our recommended path ahead:

  • Ethan and Jane to use corporately owned life insurance to set up a Corporate Asset Transfer Strategy to create a tax-free inheritance for the kids. They would redirect after-tax surplus from business income into a permanent life insurance policy rather than existing investments. The cash value of the policy grows on a tax advantage basis and the proceeds are eventually paid into the corporation tax free. The proceeds result in a credit to the capital dividend account which can then be paid to shareholders tax free.

  • Reinvest existing holdings to properly tax-allocate the accounts. We recommended they re-balance accounts to properly tax allocate different portfolio holdings into accounts where they are taxed more favourably. 

 
After reviewing the clients outside account statements, tax returns and insurance policies we were able to create a new wealth plan to quantify the impact of our recommended strategies.