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Case Study: Who Inherits the Family Business?

Updated: Jan 20, 2019

Mr. P is an entrepreneur. He built a small business into a booming enterprise. He has 2 children, who work in different industries. One went to Asia to work while the other works with his dad and is now the president of the family business.


When Mrs. P passed away, there was not much planning. Mrs. P had shares in the enterprise and the family ended up paying probate taxes that could have been avoided if she willed the shares to Mr. P.


The Need

How to give the business to the child running business, but give an equal estate to the child in Asia. Also, how to minimize the probate fees.


The Story

Mr. and Mrs. P immigrated to Canada and raised their two children from a small business. Mr. P had foresight and grew the small business into a booming enterprise. Years passed. One child found a career in Asia and married and had a family there. The other child, after working for others, found the family business to be a good source of income. He joined Dad. Eventually, Mom passed away and the distribution of her shares resulted in probate fees surprising the family.


Mr. P started to slow down. Son picked up the baton and grew the business. The value of the business was many times more that its start. We were consulted by the son to help Mr. P with his estate planning. We saw that there were large shareholders’ loans owing to Mr. P and son which would trigger probate fees. That shareholders’ loans could be repaid to the shareholders without tax, and the 20 year old business had enough cash to do so. Next Mr. P’s shares would keep growing in value, which would increase his deceased person’s income taxes as well as the probate fees. We suggested that the company be reorganized. Dad would have control and shares that work like bonds (preferred). Son would have shares that grow. A few years later, Mr. P has a new will, has drawn down on all his RRSP/RRIF which lessens his deceased persons’ income tax and is being paid by the company to buy back his preferred shares which provide him income. The son has expanded the business to another province. After seeing dad’s experience, the son is working with us on a viable exit strategy. We also saw the opportunity to protect the son, his wife and children with a large life insurance paid for by the company. The non-taxable death benefit would keep the company afloat if something happened to the son securing income to provide for the retirement of the son and his wife. The grandchildren on Mr. P are also provided for through financial planning for them, so Mr P is happy knowing his enterprise will not only provide for himself, his 2nd generation and his 3rd generation.

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