Selling Your Business – Part 3

We last left Miles and Cheryl as they were discussing how to best facilitate the sale of their business. Their new financial advisor, Susan, had proven exceptionally informed and helpful so far. But, Miles still needed a plan to take care of his son, Brett

Registered Disability Savings Plans

With respect to their son Brett, Susan recommended opening a Registered Disability Savings Plan (RDSP). Susan informed Miles and Cheryl that RDSPs were introduced a few years ago by the federal government to ensure the financial stability of individuals who qualify for the disability tax credit.

Susan advised that the federal government would allow an account to be opened by a parent or legal guardian. Contributions made by parents would be matched up to a maximum of $3500 a year by the federal government, and if Miles and Cheryl continued to contribute to the account, the lifetime grants Brett would be eligible for would be $70,000. In addition, the investments are allowed to grow tax free each year and only the grants and investment gains are taxable when the money is withdrawn.

More on Registered Disability Savings Plans

The RDSP account began in 2008 as a savings tool to encourage individuals and families to save for people with disabilities. To qualify for the RDSP, the individual must qualify for the Disability Tax Credit and be under the age of 60. Here are some of the highlights of an RDSP:

Depending on your family income, for every $1 saved the government will match up to $3 to a maximum of $3500/year. This is referred to as the Canada Savings Grant
If the beneficiary (the individual with the disability) has low income (less than $31 120), the federal government will invest $1000 each year for 20 years. This is referred to as the Canada Disability Savings Bond.
Anyone can contribute to an RDSP on behalf of an individual.
The funds grow tax free each year and when money is withdrawn from an RDSP, the individual is taxed on the growth of the investment and the grants received from the government. Contributions are not taxed.
You can open a RDSP at almost any financial institution.

Along with the help of Miles’ lawyer, Susan set up a trust for Brett to care for his needs after Miles and Cheryl were gone, and that too was surprisingly simple.

Henson Trusts

Trusts set up for disabled individuals are typically known as Henson Trusts. The main purpose of a Henson Trust is to allow family members, typically parents, to set aside funds for an individual with a disability, whereby the funds are invested and taxed separately from the individual with the disability. A key benefit of a Henson Trust is the trust’s assets are not counted as part of the disabled person’s assets when applying for government support. For a trust to qualify, a trustee has absolute discretion over the investment and distribution of capital within the trust. The Supreme Court ruled recently that the beneficiary may also act as a trustee, so long as there are other trustees and decisions must be made by majority rule. https://bit.ly/2noD1US

To start a Henson Trust, you would need to speak with a lawyer and financial advisor who has some familiarity with setting one up.

Miles was a little annoyed with himself that he never took the time to learn about RDSPs or trusts. If he had been using Susan from the beginning, she would have recommended RDSPs or trusts to him. She already knew far more about his circumstances than his former advisor did.

When it came to retirement planning, Susan advised that although they wouldn’t be able to maintain their current lifestyle, with some simple lifestyle changes, they would be very close. She also educated Miles and Cheryl on retirement projections and how some retirement software is vastly different than others.

You Get What You Pay For

Susan cited some research that showed much of the software available online for free can often give inaccurate results. “You generally get what you pay for” is what Susan said, and Miles couldn’t agree more.

At their last meeting together, Susan advised how often Miles could expect to hear from her or one of her staff. Susan promised to be very proactive in her contact and investment recommendations, and Miles and Cheryl promised to meet with Susan on a regular basis and advise her of any major life changes that might happen to them in the future.

A few months later Miles was having coffee with his business partner Jeff. Jeff remarked how much calmer and relaxed Miles seemed, even though the markets had been going down steadily for the last month.

Jeff said he hadn’t heard from his current advisor, that he didn’t know what to do. He was paralyzed with fear that he had invested the proceeds from his portion of the sale too aggressively, and now it was gone.

Miles didn’t know what to say, other than to give Susan’s business card to Jeff, and say it wouldn’t hurt to give Susan a call and meet for coffee.

In Closing

Thanks for reading my mini-series on selling a business. I hope the story of Miles was informative as well as entertaining. As you can see, it’s important to have the right people advising you on such important decisions, like selling a business.

A trusted independent financial advisor can help with more than just selling a business. If you would like to discuss your current situation or get a second opinion, Misener Wealth is there to help. You can email me anytime at Brent.Misener@raymondjames.ca.

As always, thanks for reading.

Brent

Brent Misener is a Financial Advisor with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James. Statistics and factual data and other information are from source Raymond James Ltd. (RJL) believes to be reliable but their accuracy cannot be guaranteed. Information is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is provided as a general source of information and should not be construed as an offer or solicitation for the sale or purchase of any product and should not be considered tax advice. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. Securities-related products and services are offered through Raymond James Ltd., Member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member - Canadian Investor Protection Fund.