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The Succession Expert

Robert Wright’s job is to help entrepreneurs navigate often complex personal and business issues. Armed with Mackenzie’s succession-planning checklist, he’s able to do just that.


Date: October 6, 2017

Business owners are good at a lot of things, but planning their exit isn’t one of them. According to the Canadian Federation of Independent Business, only nine percent of entrepreneurs have a formal, written succession plan. Most owners know they need a plan, but it’s one of those things that often gets pushed to the side until it’s too late, says Robert Wright, a Toronto-based partner at Investment Planning Counsel.

However, succession planning isn’t as difficult to do as business owners may think, especially with someone like Wright around to help. He spends a lot of his time examining a business owner’s current situation and aspirations for the future. A big part of the process involves using Mackenzie Investments’ business owner succession-planning checklist, a client-friendly document that covers everything from retirement income planning to exit strategies to cash-flow management.

“It’s a step-by-step process that families love,” Wright says of the document. “It helps people figure out the long-term endgame. If it’s passing the business to the kids, we have to make sure they are as organized as possible, as that increases the likelihood of the business actually passing to the next generation.”

When a business owner asks Wright to create a succession plan, they work through the checklist together. For instance, a pair of his clients, a couple who started a manufacturing copmany together, wanted to retire and earn an income from the business. However, they didn’t have a strategy for moving control of the business to their kids who were working in the company.

As Wright’s clients saw when they looked at the checklist, one of the first steps is to separate the family from the business by clearly establishing roles and responsibilities, and setting up opportunities to communicate during the planning process. Why? Because you don’t want family issues to get in the way of a good succession plan, says Wright.

It was also critical for his clients to figure out how to pass on their business in a tax-effective manner. Companies are subject to capital gains that are calculated based on the difference between the initial value of the business and its current worth. In this case, Wright recommended an estate freeze, which halted the point at which capital gains were calculated. The parents’ estate will pay those gains when they pass away. The children are now only responsible for future growth from the point of the freeze.

To cover the capital gains tax, which can be sizable, the company purchased life insurance on the parents. When the two founders pass away, their insurance will cover the taxes owed when their shares transfer to their children. The company also purchased life insurance on the children, as it is significantly less expensive and easier to underwrite at their younger ages. So when they eventually die, the insurance proceeds will cover any capital gains payable from the passing down of their shares to the next generation.

Wright also looked at ways to improve the company’s cash-flow management. He discovered that the corporation was holding a large chunk of assets in guaranteed investment certificates and T-bills. Interest on those investments is taxed at the highest marginal rate – in Ontario, that’s now more than 50 percent. He moved the money into Mackenzie’s Symmetry Capital Class Funds, where it would be taxed at a corporate rate of just 16 percent. “It made a lot of sense,” he says.

While every business owner has different issues, Wright, in consultation with Mackenzie’s Tax and Estate team, can help clients through often complex business and personal planning issues. And that has his entrepreneur clients excited. “They like that someone is actually helping them navigate these issues,” he says.

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