Emcee: Giac Gelmo, Certified Retirement Specialist

Agenda
•
Welcome and Introductions
• The Looming Problem – Giac Gelmo
• The Fundamentals of Business Succession Planning – Jeff Halpern
• Estate Planning – Use of Holding Company and Estate Freeze in Your
Planning – Nick Ierfino
• Shareholder’s Agreements, Buy/Sell Agreements and the Use of
Insurance in Your Planning – Jay Hershfield
• The Economic and Real Estate Landscape in the GTA - Derek
Burleton

The Fundamentals of Business Succession Planning
“What Every Business Owner Needs to Know”
Jeff Halpern , CPA, CA, TEP
Business Succession Advisor
Wealth Advisory Services

According to a recent study*:
• A wave of retirements among SME business owners in the coming few years could pose a significant risk for the Canadian economy
• The owners of half of all SMEs in Canada are set to retire in the next decade
• 310,000 SME owners plan to transfer control within the next 5 years
• An estimated $1.9 trillion in business assets are poised to change hands in 5 years — the biggest transfer of Canadian business control on record
• And by 2022, this will grow to $3.7 trillion, as 550,000 business owners exit
• These SMEs employ close to 2 million workers and account for 15% of GDP
* The Canadian Press, Nov 13/12

• “a plan to establish the framework for the future transfer of ownership and management of your business to a chosen successor” – be it family, business partner/shareholder, management or outside third party
• A plan that seeks to maximize shareholder value, family harmony, and overall security to all interested parties (shareholders, family, management, employees, customers, bankers)
• Can involve business planning, management and ownership transition planning, tax planning, estate planning, and personal financial planning

Importance of Business Succession Planning
Source: CAFE (Canadian Association of Family Enterprises)
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Benefits of Business Succession Planning May Include:
• Smooth transition and continuity of your business
• Maximize value at exit
• Minimize taxes
• Financial security for you/your family
• Preserve family harmony
•
Clarify future roles and responsibilities
• Inspire confidence in key stakeholders, including family, management, employees, customers and suppliers
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help …

TD Wealth 5 Step Business Succession Planning Process
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Topics Covered in our Review
• Review and analysis of facts
• Identification of your long term vision
• Validation of your succession plan
• Examination of tax, retirement and estate planning solutions
• Examination of risks and risk mitigation solutions
• Observations and recommendations
• No fee charged for our review
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Estate Planning – Use of Holding Company and Estate Freeze in Your Planning
Nick Ierfino , CA, CPA
Ierfino & Associates

WHAT IS AN ESTATE FREEZE?
• An estate freeze refers to the transfer of future growth in the value of a business, real asset, or investments into the hands of the younger family members
• Original owner will be deprived of growth while still continuing to control asset
• An estate freeze typically limits the value of your estate to the FMV at the date the freeze is implemented
• Consequently transferring that growth to the younger generation who will benefit from higher life expectancy rates and probably lower marginal tax rates

WHY SHOULD YOU USE A FREEZE?
• MAJOR REASON IS TO
Other Reasons:
• Creditor Protection
• Multiplying The $800K Capital Gains Exemption
• Income Splitting
• Probate Planning
• Family Law Protection

SOFT ISSUES TO CONSIDER?
• Objectives of freezor
• Family relationships
• Nature of assets
• Income needs of freezor
• What assets to be frozen
• Who will participate in future growth?

METHODS USED TO IMPLEMENT A FREEZE
• Typical freeze has freezor exchanging common shares(growth) for fixed value preferred shares
•
Family members subscribe for new growth shares directly or indirectly via a family trust
• Freezor usually retains voting control
• Several different methods can be used depending on facts

USE OF A HOLDING COMPANY
• Shares are rolled into holding company via 85 election
• New shares are issued to family trust (growth shares)

USE OF A HOLDING COMPANY FOR
CAPITAL GAINS EXEMPTION
CURRENT
STRUCTURE
PROPOSED
STRUCTURE
Mr. A
$800K CGE
TRUST
100%
Common shares
OPCO
Beneficiaries
100%
Common shares
HOLD CO
Mr. A
100% Preferred shares (V, NP)
100%
Common shares
TRUST
100% Common shares (NV, P)
HOLD CO
V = voting
NV = non-voting
P = participating
NP = non-participating
OPCO

ADVANTAGES OF USING A HOLDING COMPANY
Creditor Proofing
• GSA on loans to OPCO
• Ability to protect investments (i.e. marketable securities and real estate) held in company

USE OF A HOLDING COMPANY FOR TAX FREE DIVIDEND
HOLD CO
Tax free dividend
TRUST
HOLD CO
Connected
Corporations through control or > 10% of votes and value of shares
OPCO
Tax free dividend

OTHER ADVANTAGES OF USING A HOLDING
COMPANY
• ACCUMULATE WEALTH OUTSIDE OPCO
• SEPARATE TAX PLANNING
• CAPITAL GAINS EXEMPTION
• TAX FREE INTERCOMPANY DIVIDEND

ADVANTAGES OF USING A HOLDING COMPANY
Uninterrupted Operations
• Allow existing beneficiary to manage holding company assets without involvement of OPCO shareholders

ADVANTAGES OF USING A HOLDING COMPANY
Insurance
• BENEFICIARY OF POLICY
• CAPITAL DIVIDEND ACCOUNT
• DIVIDEND PAID TO SHAREHOLDERS- SPOUSE & CHILDREN

Shareholder’s Agreements, Buy/Sell Agreements and the Use of Insurance in Your Planning
Jay Hershfield , B.A., LLB., CLU, TEP
TD Wealth Advisory Services
Vice President and Estate Planning Advisor: Shareholder's Agreements, Buy/Sell Issues and Using Insurance

Buy-Sell Tragedies
• Death creates adversaries
• Interested parties not the ones you think
• Family intervention
• Share transfers and cash flow terms differing from funding provisions
• Share valuations not at FMV

9
10
11
6
7
8
3
4
5
1
2
16
17
18
12
13
14
15
Immediate Finance Arrangement
Year Age
59
60
61
56
57
58
51
52
53
54
55
66
67
68
62
63
64
65
Deposits
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
Death Benefit
3,117,002
3,244,084
3,380,969
3,527,502
3,683,549
3,849,983
4,026,848
4,196,973
4,363,557
4,531,483
4,687,202
4,852,676
5,010,910
5,172,752
5,337,981
5,516,884
5,702,100
5,892,921
CDA Credit
2,991,064
2,993,094
3,006,031
3,029,950
3,064,983
3,112,281
3,172,022
3,227,185
3,281,117
3,339,025
3,387,556
3,449,200
3,507,450
3,573,749
3,648,220
3,746,508
3,855,866
3,975,481
Annual Loan
Amount
Outstanding Loan
Balance
Net Cash Outlay Net to Estate on Death
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
130,850
261,700
392,550
523,400
654,250
785,100
915,950
1,046,800
1,177,650
1,308,500
1,439,350
1,570,200
1,701,050
1,831,900
1,962,750
2,093,600
2,224,450
2,355,300
22,714
25,808
28,859
31,857
34,804
37,676
6,543
9,846
13,122
16,364
19,564
40,478
43,171
45,740
48,170
50,498
51,826
54,081
2,986,152
2,982,384
2,988,419
3,004,102
3,029,299
3,064,883
3,110,898
3,150,173
3,185,907
3,222,983
3,247,852
3,282,476
3,309,860
3,340,852
3,375,231
3,423,284
3,477,650
3,537,621

Immediate Finance Arrangement Continued
82
83
84
85
78
79
80
81
86
87
88
74
75
76
77
71
72
73
32
33
34
35
28
29
30
31
36
37
38
24
25
26
27
21
22
23
7,713,937
7,902,512
8,093,718
8,287,723
8,484,900
8,685,377
8,889,376
9,096,934
6,457,976
6,629,742
6,804,430
6,981,895
7,161,845
7,343,828
7,527,788
9,307,906
9,521,871
9,738,343
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6,498,778
6,828,531
7,170,784
7,526,247
7,895,811
8,280,074
8,679,828
9,094,836
4,488,065
4,743,464
5,009,858
5,287,262
5,575,327
5,873,123
6,180,661
9,307,906
9,521,871
9,738,343
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
2,617,000
5,096,937
5,285,512
5,476,718
5,670,723
5,867,900
6,068,377
6,272,376
6,479,934
3,840,976
4,012,742
4,187,430
4,364,895
4,544,845
4,726,828
4,910,788
6,690,906
6,904,871
7,121,343
68,042
68,042
68,042
68,042
68,042
68,042
68,042
68,042
54,264
68,042
68,042
68,042
68,042
68,042
68,042
68,042
68,042
68,042

Result
• 15% pre-tax return on the insurance investment to the corporation at year 38
• Tax free removal through the Capital Dividend Account further enhances estate and provides liquidity for heirs
• No tax at all if shares left to a spouse through spousal roll-over
• 100% of original capital available for reinvestment

Questions? and Answers

The Economic and Real Estate Landscape in the GTA
Derek Burleton
Vice President and Deputy Chief Economist

Disclaimers
The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. Where such statements are based in whole or in part on information provided by third parties, they are not guaranteed to be accurate or complete. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax, or investment advice. Particular investment, trading, or tax strategies should be evaluated relative to each individual’s objectives and risk tolerance. TD Wealth, The Toronto-Dominion Bank and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.
TD Wealth and Wealth Advisory Services represents the products and services offered by TD Waterhouse Canada Inc. (Member –
Canadian Investor Protection Fund), TD Waterhouse Private Investment Counsel Inc., The Toronto-Dominion Bank and The Canada
Trust Company.
®/ The TD logo and other trade-marks are the property of The Toronto-Dominion Bank or a wholly-owned subsidiary, in Canada and/or other countries.
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