Advisor analysis – Bernie Clermont

Business owners often wait far too long to start retirement and succession planning. Karen and Sam need to see a financial planner as soon as possible. I’d focus on three areas with these clients: protection of their disabled daughter, business succession planning and retirement planning.

In terms of Chloe’s future, I’d ask the couple how current their wills are and whether they have a discretionary trust set up to protect their daughter’s government disability benefits. And it’s not so much from the income perspective. If they leave her $1 million, Chloe probably won’t miss $11,000 in government payments—but her health and medical benefits are critical.

Another key question: have they set up a Registered Disability Savings Plan (RDSP)? It’s a great opportunity to build money on a tax-deferred basis, with matching government grants and bonds of up to 300% based on contribution amounts and Chloe’s income. Chloe can contribute to age 59 and get those government grants until age 49.

When it comes to their business, Karen and Sam need to discuss a firm exit date and obtain a business valuation from a qualified business valuator who can look at the value of their business from an asset and cash flow perspective. Then they can build that valuation into their financial plan. After all, the business may be the largest source of capital available for their retirement—essentially, their pension plan. This case is interesting, though, because there is competitive pressure from big box stores that may drive down the value of their business significantly over a short period of time.

They also need to seek accounting expertise to prepare their business financially to take advantage of the $750,000 capital gains exemption, potentially for both of them if they’re both shareholders.

For the retirement planning piece, an accredited financial planner can help them define and cost their vision of retirement, and then build a plan that includes their personal and business assets, as well as Chloe’s disability benefits. They need to know how long their money will last and what will be left as a legacy to provide their daughter with income for the rest of her life.

Back to Karen, Sam and Chloe Case Study >>