The trillion dollar wealth transfer question

by 03 Dec 2014
The largest transfer of wealth in human history is predicted to occur over the next two decades, as $10 trillion in the United States and $1.3 trillion in Canada is passed on by baby boomers to the next generation.

A significant portion of this wealth resides with business owners or children who inherited or will inherit wealth either directly or indirectly through family trusts. If we believe the statistics, 90 per cent of these transfers will fail. Think about it… some of these businesses, which represent up to 45 per cent of the GDP in the economy, may be wiped from the economic landscape. What’s worse, disputes are destroying families while lawyer fees and diffusion drain the family asset, which took years to cultivate.

CFIB Research Reports on over 10,000 small to medium sized business owners in 2004 and 2006 found that transfers will fail for two reasons: the lack of a formal succession plan and family dynamics. Yet, less than 7 per cent had a formal, written succession plan.

So what is stopping these successful, task oriented, entrepreneurial boomers from taking the bull by the horns and ensuring the company thrives when they’re gone? 

There is certainly no shortage of advice on this subject from life insurance advisors, accountants, lawyers, private wealth bankers and a host of other advisors. There is an article a week in the major newspapers on the subject.  

The advice tends to focus on two problems triggered by the death of the key shareholder of a family enterprise.  These problems usually fit into two categories:
  1. A liquidity event or need for cash
  2.  A harmony problem in the family
The first problem can be solved in the most economical and tax efficient manner by acquiring a permanent life insurance policy to fund the income tax liability and estate costs if the owner can pass an insurance medical. This is particularly important for small to medium sized enterprises where the good will is more personal than business. Many family enterprises set up a corporate structure involving family trusts and a family holding company as a beneficiary of the trust to ensure maximum tax savings and creditor protection at death. The Family Holdco can be the owner and beneficiary of the life insurance policy creating a tax free capital dividend account at death which can potentially be paid almost entirely tax free to family shareholders.


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