The 3 Ps for leaving a legacy

“Legacy is not what I did for myself.
It’s what I’m doing for the next generation.” 

-Vitor Belfort

Your business, your net worth and your family name. As a business owner, these are just some of the legacies you’ll eventually want to pass onto your children. Transferring these legacies, though, is not without the risk. Businesses can falter, net worth can be spent and a family name can be forgotten gradually over time. But with thoughtful planning and ongoing assistance, you can minimize these risks to preserve, protect and promote your legacy well into the future.    

To illustrate these three legacy-enhancing strategies in practice, let’s meet Mic and Stevie Flatwood, a fictional business family. For the past 30 years, Mic and Stevie raised their three children and grew their small music store in their hometown of Vancouver into the largest chain in British Columbia. Now that their children are ready to take over the family business, Mic and Stevie would like to spend more time travelling, seeing their favourite bands, and less time counting inventory. They also want to ensure the financial legacy they’ve created will allow their family business to continue, provide their children and grandchildren with financial security and give back to the communities they work in. 

Preserve

Mic and Stevie will eventually need to pay about $3M in estate taxes and administration costs, even after all the tax-efficiency planning they’ve done with their advisors. These expenses will be paid by their estate and reduce the value of the inheritance left to their children. Their options for paying these expenses include: 

  1. Liquidating some of their estate assets (e.g., investment portfolio, real estate, rare record collection) 
  2. Creating a dedicated fund in advance 
  3. Purchasing a permanent life insurance policy 

The costs/benefits for each of these options is summarized below:

Protect

After being in the music industry for over 30 years, Mic and Stevie have seen their fair share of lawsuits and messy divorces. While they’ve been relatively lucky and are still going strong commercially and personally, they’re concerned about the negative impact of a future legal dispute on the financial legacy they want to leave to their children.

One option they’re considering for protecting their financial legacy is transferring their family assets to several trusts. For example, when Mic and Stevie turn 65, they can transfer their personally-owned assets (e.g., home, investment portfolio, rare record collection) to a joint partner trust. Since their trust is now the legal owner of these assets, they will no longer be subject to legal claims that may be levied against Mic and Stevie personally (subject to certain conditions). These assets will also no longer be subject to probate fees (depending on the province you live in, probate savings could be material) and their estate can be wound up faster than if they continued to own these assets personally.

As for their three children, Mic and Stevie can set up a family trust for each of them to hold their shares in the family music business, and their respective personal assets. Each family trust will also provide their children with a degree of security in case they were to get divorced in the future, since these trust assets would not be considered family property (e.g., shares in the family music business would not end up being owned by a non-family member). 

While these trusts can provide legal protection and probate savings, Mic and Stevie understand there will be costs involved in setting up each of them, and in preparing the ongoing annual trust returns and time spent with their advisors to oversee these trusts.

Promote

Mic and Stevie are first-generation entrepreneurs who are very proud of the longevity of their business, and the benefits it’s provided their family, employees and customers. While they participate in and give to various charities in their community, they’d like to create a lasting legacy using the wealth they’ve accumulated through their business. They’d also like to teach their children and grandchildren financial responsibility and the value of philanthropy. After speaking with several fellow business owners, they’ve decided to set up the Flatwood Family Foundation to oversee the family’s charitable activities. 

The costs/benefits of their family foundation are summarized below: 

Whatever your legacy goals may be, they’re far too important to be left to chance. Preserve, protect and promote the things you hold dear. We can assist you with your family business succession plan, giving you greater peace of mind in knowing that all possible options have been considered to secure your family’s legacy. Our roster of experts includes trust and estate practitioners with specified knowledge in tax optimization strategies. We also offer coordinated insurance strategies through licensed advisors of CWB Insurance Solutions. 

Jason Kinnear, CPA, CA, CBV
Family Office Manager, CWB Wealth Management

 

Insurance products are offered through CWB Insurance Solutions, a wholly-owned subsidiary of CWB Wealth Management. All insurance products are subject to the limitations and conditions in the applicable policy or certificate of insurance in force at the time of purchase or enrollment and applicable legislation.

 

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These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.

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