Legacy Planning

Rob:

Hey folks. Today we’re talking about legacy planning, why it matters to you and how you could benefit from having some good advice. On that point, I’m Rob Tétrault from robtetrault.com, Head of the Tétrault Wealth Advisory Group here at CG Wealth Management.

I’m lucky to be here today with Adam Buss, Wealth and Estate Planner here at CG Wealth Management. Let’s get right into it. Adam. Legacy planning. What does that mean for you?

Adam:

For me, the first thing that pops to mind is, trying to leave a lasting legacy. You’ve spent your lifetime building a lot of wealth, you know who’s going to get that wealth when you pass away. Legacy planning is an important part of the overall estate planning that we do for clients.

Some people don’t care if they leave any money to anybody in particular. And there’s certainly no right or wrong answer. Do they want to have charitable aspirations? all those different things that we kind of want to factor in for a client’s situation.

Rob:

Right. Would you say that this is part of proper financial planning and estate planning?

Adam:

Absolutely, yes. It’s deciding who’s going to get your money and what way, shape or form should they get it.

Rob:

When I think legacy planning, I kind of have this vision of kind of multi-generational money or like leaving a legacy. And for some people that might mean charitable giving. For others that might mean their name on a wing or on a building or something like that. But for other people it might mean leaving all of it to their direct descendants or their grand-kids, or someone might want some sort of trust for long-term aspirations. Legacy planning would be encompassing all that.

Adam:

It’s pretty much a little bit of everything. Depends on what’s for that client’s unique situation, do they want to leave a large chunk of wealth to charity? Do they want that charity to get all the money when they pass away? Do they want to create a foundation or something along those lines ahead of time to create that lasting legacy? An endowment fund that’s going to be to their family’s name, whether it’s to a university, hospital, wherever it happens to be, leave the next generation of their family better off financially than they were.

Rob:

Why would the planning be so important in something like this. Once you just say, I’m going to pass away on this day, whatever’s left is simply going to go to whatever I decided, why would the planning be that important?

Adam:

You can certainly do that, but you want to make sure that everything’s lined up ahead of time. Is your estate documentation up to date? is what you want to happen actually going to happen because you’ve done that pre-planning of lining all those things up ahead of time. Are there more efficient ways with taxes... Taxes, OK. It’s great. I mean offsetting a large tax bill at time of death with a large charitable donation can be quite powerful when it comes to your estate tax bill. But we want to look at where should that money come from. Is there money in a corporation? Is it used in a life insurance policy? all those different things that we want to factor in.

Rob:

And I would imagine the earlier we get started on that planning, the legacy planning, the better would be, I guess first of all, tax wise and probably more comfort I imagine at the end of the day for the client, for the individual as well.

Adam:

Yeah, I mean, if we can put certain strategies in place ahead of time and say, well, you know, we want to make sure we’re leaving, $1 million for the charity, that’s important to you without sacrificing your lifestyle. We have that ability to implement some of those things the sooner we start.

Rob:

Now we’re also talking succession, maybe you have a farm succession or business succession, or any kind of type of succession. How does that play into the legacy?

Adam:

That’s perfect for business owners or farmers specifically. They’ve put their heart and soul, blood, sweat and tears into these operations of theirs and they want that to continue in the family and stay potentially in the bloodline. You know, they need to do a lot of work ahead of time, planning. Who’s going to take over the succession of those operations, make sure that goes as smoothly as possible so that the business can continue to maintain profitability, and continue to the next generation.

Rob:

Especially those businesses that might carry the family name, you want to make sure that the brand is strong, the situation is strong, or the tax situation is strong, so that the company survives and potentially lives for a while. And I guess at that point you might be involving the next generation, or even two generations…

Adam:

multiple children and it’s who’s going to take over the operation? Sometimes the person that you’ve always thought is going to take it over isn’t actually the one that wants to take it over. Maybe it’s a different child that actually was waiting to take over the business in the wings.

Rob:

Can you think of a situation where either you were presented with a case or a situation where there was a significant error done on the planning, on the legacy planning or maybe the opposite, maybe you saw something that saved a ton of taxes or was just so phenomenally well planned out that the client ended up being significantly ahead, or ended up having a situation where the legacy planning dramatically altered their situation.

Adam:

What we’d like to think that all cases that I get involved in kind of has that result that we’re, you know, we’re saving the clients a ton of money tax wise and kind of doing a lot of pre-planning.

There’s a lot of worst case scenarios out there. You know, a family has a farm, they leave each of their kids X amount of the acreage in the long run of things. That’s not necessarily the most efficient way of doing things. Especially only if one of those kids actually wants to farm the operation.

Now, that one sibling has to go in and buy out all the other siblings from the farm. Just to get all the land that they wanted to begin with, Mom and Dad could have done some pre-planning. He has some tax on both sides, you end up with a huge tax bill up front and then another tax bill on the transfer.

Rob:

So any last thoughts on legacy planning, Adam?

Adam:

Well I can still apply it again. Family cottage. Who’s going to take that over? maybe in the family for 60 years and it comes with a huge tax bill. Are we going to put the kids into financial difficulty? Do they have to go on mortgage with a property just to make sure the taxes are paid.

Rob:

Right. Cause sometimes you’ll have, a cap gain. It’s generally not your primary residence. So you’ll have a capital gain. The capital gain might be the majority of the value of the cottage since values have appreciated. Now you’re looking at 25% tax bill potentially on a capital gain of a cottage and now there’s no money.  Do they have to either fire sale the cottage or get a mortgage on it, and how are they going to fund that mortgage after that?

Adam:

it comes with pre-planning. If you can choose ahead of time, you have three choices. Do you want, your family to get money, a charity or the CRA? If you can pick any of those two by planning ahead of time, I’m assuming you’re going to try to leave CRA out of the equation as often as possible, but without proper pre-planning, the choices aren’t necessarily yours.