Kevin Greenard: Beyond the usual planning

It doesn’t happen often, but every now and again, a client needs more than a standard financial plan. They also need assistance in the execution of the plan.

A member of our team of specialists is focused on providing an integrated approach that is designed to support business and wealth transition planning. This planning includes working with families to prepare for inter-generational wealth transfers, with business owners to explore transition or exit options, and with high-net-worth clients going through a wealth transition event.

Relying on our experience in the areas of advanced planning, business advisory and corporate estate planning, our team of wealth planning specialists advise on business and wealth transition issues, discuss tax and other financial considerations, and where relevant, explore and suggest family governance strategies to help prepare the next generation to carry on your legacy.

Transition planning

As our clients begin to plan and prepare for their transition event, they often have many questions. The questions are more complex and multi-dimensional when dealing with a transition event.

Each situation is unique and with the right guidance and planning, a solution may be prepared that considers not only the preservation of your personal and family wealth, but also promotes family harmony.

The sooner you begin the conversation, the better equipped you will be in planning the way forward in a thoughtful and intentional manner.

Business transition planning

You may never make a more difficult decision than when the time comes to transition out of your business. Do you sell it? If so, to whom? Do you transfer ownership to outsiders, the employees, or a family member?

Should you decide to transfer the business to family and/or non-family members, there are important considerations, some of which include:

1. How do you ensure that you properly identify, assess, and develop candidates so that they are set up for success as future business owners?

2. Once future heirs are in their future roles, what are the impacts to the business strategy, business models, and processes?

3. How do you, as the outgoing owner, transition out of your role, and to what extent (if any) will you remain involved in the business?

4. What is the impact to your governance structure? Where there is not such a structure in place, what are the appropriate models to put in place?

5. How do you address all these variables whilst preserving family harmony and managing any conflict in a positive and constructive manner?

6. What if you are contemplating a sale?

a) When is the right time to sell? And what is your business worth?

b) How do you start a confidential sale process to maximize your chances of getting the best deal?

c) Is your business ready for sale? And if not, what do you need to do to prepare it for a sale? What about a merger and acquisition? Introduction of new business partners? Recapitalization? What are the variables and considerations at play?

Planning and preparing for a transition

A common saying is “failing to plan, is planning to fail,” and when it comes to wealth transition and financial planning, these words become even more meaningful. Some people have created more than enough wealth to secure their own livelihood and secure the lives of their next generations.

As a Portfolio Manager, it is our responsibility to make sure our clients preserve their wealth and have a healthy transitioning process. Careful financial planning considers effective tax and asset strategies that look to protect the estate and the succeeding family.

We devote time and effort into creating an integrated approach to planning and preparing for wealth transition. Within Scotia Wealth Management, we work directly with our Business and Wealth Transition specialist. Clients have the benefit of having both the specialist and our team working together on a comprehensive wealth transfer plan.

Wealth transition planning

A wealth transition event can occur at different times for different clients. Often, the plan is put in place in conjunction with the transfer/disposition of a large asset or operating company. We have also worked on wealth transition plans when there is no operating business.

The key common denominator in all situations is that there is significant wealth that is about to go through a shift. The shift can be due to a recent sale of your business (as noted above) or through a major life event (such as illness, death, or divorce). The event triggers the transfer of wealth to another party, in accordance with the stated wishes of the transferring party.

At a time where emotions can run high, key considerations include:

1. After the sale of our client’s business, what does the next chapter in life look like for them? How does it impact their family? What is the process for setting up a tailored plan specifically to meet our client’s needs and those of our client’s family?

2. How does one communicate the transfer of wealth to family members in a way that aligns with family values while minimizing the impact of any conflict?

3. What measures can our clients take to ensure their children, and future heirs, become stewards of the family wealth aligned with the family values?

The Greenard Group approach

Ultimately, our approach to helping with complex transition situations is to involve our Business and Wealth Transition specialist. Together, the approach with clients to planning and preparing for their transition event comprises of a three-step process, namely: discover, deliver, and monitor.

Discover

As a Portfolio Manager, we already have a deep understanding of our client’s financial situation. When we bring in the Business and Wealth Transition specialist, we meet for an initial consultation to gain an even deeper understanding of our client’s specific situation.

We will ask additional questions to our client outside of the traditional Total Wealth Plan. We go into greater detail about our client’s family, business goals, immediate concerns, and future needs. As part of the process, the Portfolio Manager and the Business and Wealth Transition specialist gather and review our client’s documentation and undertake a detailed analysis of their situation.

Deliver

Based on our discovery session with our client, we develop a robust plan with customized options that consider best practices around family governance, wealth stewardship, business readiness, and effective tax planning. The plan will also include how and when to address trust and estate planning, investment strategies, insurance solutions, strategic lending, and philanthropy.

This results in a strategic roadmap aimed at helping to clarify our client’s objectives, organize their affairs, and prioritize the next steps to help them move forward with implementing a successful transition plan.

Monitor

In collaboration with our team of specialists, as a Portfolio Manager, we work to help ensure that identified strategies are effectively executed. Post implementation, we continue to revisit our client’s Total Wealth Plan to ensure it is kept current and evolves as your life changes.

Team of specialists Total Wealth Plan

As a Portfolio Manager, it is nice to know that we have resources available whenever we are presented with a complex situation. We can collaborate with the Business and Wealth Transition specialist, and other specialists on our team, to do an integrated plan.

Having multiple individuals with different specialties enable us to design a set of strategies to help alleviate the pressure for our clients and lay out a clear and sustainable wealth transition path. These plans are always done in conjunction with our clients’ lawyers and accountants. The following are five different scenarios where we outlined the client situation, a few facts, actions taken, and various outcomes:

Illustration # 1 – Shareholder agreements

Client situation:

Our client, one of 3 siblings, expressed her concerns regarding their shareholders’ agreement (SHAG) and the transition of the company to the next generation.

Client facts:

When asked if she understood the current agreement, it was discovered the draft was not signed, and hence no valid agreement existed.

Actions taken:

Our team provided guidance to the broader members of the ownership group in understanding the purpose and approach to a family friendly shareholder agreement (SHAG). We advised about shareholder and the company protections. Additionally, we laid out an agreeable process to anticipate and deal with predictable/involuntary events such as death of a shareholder, and unpredictable or voluntary events, such as a shareholder’s chosen exit. We shared our expertise and advice on the processes to effectively deal with disagreements as they arise.

Outcomes:

We were able to engage with all shareholders and had meaningful discussions that resulted in the drafting of a SHAG. Individual shareholders had a deeper understanding of the financial outcomes when shares are transitioned, including planning opportunities to mitigate costs. As family members were involved, they understood the importance of family communication and alignment of estate documents.

Illustration # 2 – Shared ownership

Client situation:

Our client had concerns about shared ownership. The client had four children, where they were all going to receive an equal division of his estate the way it was currently structured. We informed him of some challenges that may result when siblings inherit joint ownership of assets from parents.

Client facts:

The client is unaware that the transition of properties from parents to children often forces the creation of an ownership group. We introduced our Business and Wealth Transition specialist, and we obtained some additional information through the discovery process.

Actions taken:

We had a meeting to provide advice and options about partnerships by chance (birth) and partnerships by choice (decision). The conversation was in depth. During the discussion, we provided guidance about the ability of children to work together, decision making, conflict resolution, roles, and responsibilities. Together we created agreements to address and govern financial and non-financial matters.

Outcomes:

In this client situation, we were able to address the co-ownership issues before they arose and aligned the family members. This process provided an opportunity for education decisions for both the parent and children.

Illustration # 3 – Importance of communication

Client situation:

We had a client that built up a successful business, and in addition to having an active business, she had accumulated both residential property and commercial real estate. In doing the Total Wealth Plan, we concluded the absence of communication with family members. We explained how silence is a key destroyer of family wealth. We started the process with the discovery stage and brought in our Business and Wealth Transition specialist.

Client facts:

During the discovery, it was clear that the family had never discussed wealth transition planning, roles, responsibilities, and levels of involvement. There was never a discussion about retirement or transition, despite the client approaching retirement.

Actions taken:

We facilitated the conversation about wealth planning and how it impacts all individuals who are (willing or unwilling) participants in a transition (estate) plan. We laid out the roles and reasons of involvement for everyone. We clarified all the important components of the conversations and answered all family member questions.

Outcomes:

The process created a better understanding of the desired planning goals and objectives. We were able to create better alignment for the family to the overall goals of wealth transition. The conversations gave us an opportunity for course correction where original plans were not agreeable to all family members. The meetings achieve one of our client’s main goals which was to promote and protect family harmony and understanding.

Illustration # 4 – Protecting wealth and social goals, strategic philanthropy

Client situation:

Our client expressed concerns that significant liquidity events, sale of business and sale of commercial real estate would trigger a large tax liability. We spoke with our client’s accountant to get details on the tax consequence for disposition as part of preparing the Total Wealth Plan.

Actions taken:

In conjunction with preparing the financial plan, the client expressed leaving funds in the future to charity as part of an estate plan. During the discovery process, we brought in our Business and Wealth Transition specialist. We clarified a philanthropic plan that expressed the client’s family social goals and beliefs.

We met with the family and advised how philanthropy may significantly reduce taxes paid to Canada Revenue Agency if redirected to social causes. We were able to advise on opportunities to unbundle the decision-making process (to whom, when, or how much) to accommodate the family’s overall philanthropic plan.

Outcomes:

The client mapped out a plan to set up a donor-advised foundation, with partial proceeds from the commercial real estate disposition, which had the largest taxable capital gain. We put all the children on as trustees of the foundation. This helped achieve the social goals and tax benefits in the year of disposition while also enhancing communication within the family.

Illustration # 5 – Distribution of wealth: fair, equal, equitable

Client situation:

A family business may be bequeathed to a child or children who actively work in that business to the exclusion of siblings who are not actively involved in it. We worked with a client who had three children, and only one was currently active in the business.

Actions taken:

We promoted a conversation with the family to define the meaning of fair and equitable. We also advised on the implications to family harmony. We brought in our Business and Wealth Transition specialist to the meeting. Together, we proposed methods and considerations to ‘equalize’ estate distributions.

Outcomes:

The client was content after the discussions as the family had a better understanding of distribution intent and why. We were able to outline different options that would have more adverse tax consequences. In the process, the client realized that there were further steps needed to be done to ensure better equalization was accomplished. The meeting mapped out steps over the next five years that would result in better equalization. All family members were pleased that plans were in place, and a five-year plan was clearly articulated. Overall, family harmony was enhanced, and future litigation would be avoided.

Kevin Greenard CPA CA FMA CFP CIM is a Senior Wealth Advisor and Portfolio Manager, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email greenard.group@scotiawealth.com, or visit greenardgroup.com.