Death of Business Owner, Shareholder or Key employee
You’ve died – it’s caught everyone off guard
Eventually we all meet the same end – a dead end – we all die. It’s a question of when not if – yet despite this certainty fewer than 50% of Canadians plan for this event. Why? Do we feel it will never happen to us? Is it cultural? Simply too sad or dark to talk about? Perhaps it’s the mindset of being gone and what is there to care about if one is dead?
The cost of doing nothing on your family
As the primary income earner – your lifetime income to support your family comes to a full stop with your death. What, or how much exactly is your lifetime income amount to? Read More
Let’s take a 30-year-old earning $150,000 per year. The income earned to age 65 (not factoring future increases, tax, or inflation) would amount to $5,250,000. This sum likely exceeds the value of most homes and makes the saying your health is your wealth become tangible. What does your lifetime income amount to? Can your family continue to live where they live? Can your family support debt payments? Childcare to age of majority? Will your children attend post-secondary education or technical training? Will this hurt your spouse’s savings and retirement plans?
In the event of no planning what options does your family have access to? Do you have enough in emergency savings to float short term needs like the mortgage and household expenses for 3, 6 or 12+ months? How about till retirement? Are there enough debt tools or available credit limit to act as a safety net? If registered funds are available how much tax will be assessed in accessing them? How does this tax combined with the need for cash imapct your burn rate on savings? When will the money run out? Do you sell or stay in your home?
Death’s impact on your business
The unexpected passing of a business owner, partner, or key employee all have varying but detrimental impacts on a business. Such as: Read More
Single ownership scenarios the impacts are likely fatal to the business itself and with it impacting the lives of staff and their respective dependents.
In partnership arrangements the odds of continuity improve, however, without a proper shareholder agreement or funding in place can often find partners being forced to integrate non-business savvy spouses or family members to take up the role of the deceased partner. Scenarios like these can become silent killers for a viable business.
Those that employ niched roles requiring specialized education, experience or training are unmeasurable. The unexpected death of these employee(s) can collapse revenues instantaneously. These scenarios are not exhaustive, but collectively they share a common thread best summarized with the saying ‘failing to plan is planning to fail’.
Despite your best intentions NOT planning at all leaves family or business partners in a situation where they have to simultaneously shoulder grieving with financial worry. Its forces those left behind to park emotions and fast tracks them into problem solving to determine accessible liquidity and raise questions such as: Does the business have sufficient ‘cash’ to draw for partner buys outs? What about floating business expenses while a plan is sorted out? Sufficient business assets to liquidate? Corporate owned loans to access? Will banks call back loans due to impacted revenues? Loss in consumer or vendor confidence sinking revenues further?
Creating, accessing tax free cash in times of death
When hearing about a family losing a loved one or a business losing its founder, more often than not the cases where families or businesses are spared from certain doom share this common trait: having access to immediate cash. Liquidity contracts = cash in a time of need. Read More
Corporate owned life insurance allows a business to buy out the shares of the deceased partner (giving the surviving partners full control/autonomy of the company). In turn this avoids having to incorporate and work with your deceased partners spouse you never got along with.
Replacing the irreplaceable employee will remain impossible however having liquidity to create space and time to implement alternate plans could be the difference between selling your business, winding it down or a successful story ending. For families, having access to a lump sum of cash can be the difference between keeping vs losing your home.
The difference between insurance and the cost of doing nothing is they both result in premiums.
In return for premiums paid, insurance provides tax free cash in a time of need. Premiums not paid (AKA not planning) ends up costing far more than the sum of premiums paid towards insurance AND leaves behind no liquidity, financial stress, emotional turmoil and those left behind wondering why? Not planning causes a second death – to your legacy.
Alberta, British Columbia & Nova Scotia