The client had built a successful real estate business over the last 10 years and owned multiple properties. The business was growing and had strong cashflow, with EBITDA exceeding half a million per year. The business is worth about $3-4 million and the real estate assets, outside of the principal residence, have a market value of about $9 million.
When clients are busy doing great things and creating value, they sometimes don’t realize that in the event of death, all that value, whether real estate/business/other asset, is subject to a sometimes significant tax bill when passed on to family in the event of death. Sadly this amount is due within 60 days to CRA, which should be a time of grieving rather than financial strain. The CRA will base their final tax bill on the gain vs cost as a capital gain. Most clients are not fully aware of this. Clients that do know about this exercise and calculation sometimes think it’s just a risk hanging over their heads, or that they have to park cash they are unwilling to let go of for current use. There is a better way…
In this case, after a thorough review including using external professionals and the client’s own accountant, it was determined that the starting terminal tax liability plan was for $1.5 million, growing to $4.9 million in year 15 and $12 million in year 30.
We then identified a way of structuring liquidity for these taxes with a cash outlay of $480,000 over 30 years, and a net-to-estate of over $10MM. Yes, that’s correct! You don’t need to set aside $20 million in cash and strip it out at death only to lose half to taxes. Instead, you can use advanced estate planning and financing strategies deployed by some of the wealthiest families in Canada, and known to a small subset of advisors in the industry.
To recap:
- Cash is being re-positioned into a tax-free growth environment and accessible through lending.
- Significant peace of mind and education in the process – family and estate needs are tended to.
- The client transferred existing investments, and is now investing another $300K annually, and diversifying net worth – all being quarterbacked through SPW.
- Refinance of $2MM+ will be explored at renewal time in one year.
- This client is a major ambassador and long-term connection for all their financial affairs.
- Significant revenue is created as a result of this connection.
The case study above captures a segment we do considerable work with — the successful business owner and/or real estate investor. If you have a client who could benefit from a strategic plan for their final estate taxes, give us a call. We welcome the opportunity to discuss your client’s unique situation.
