The importance of implementing the recommendations of your financial Plan
We’ve all heard them, the stories of individuals with both simple and complex financial planning needs that are never discussed because a financial professional was never engaged and thus their services never utilized. These are lost opportunities. There was never a plan, planning strategies were never considered, and because of this, the benefits were never recommended let alone executed.
The cost of not planning is the loss of benefits that would have been identified and executed had the individual met with a planner, along with the peace of mind of having a plan in place.
The Story
Here is the story of Chris, a 44-year-old business owner with a young family (spouse-Alex 44, daughter- Janet 12, Son-William 14) who are financially dependent. As the business grew
and succeeded, Chris was wise enough to seek the professional services of a financial planner in order to put together an integrated personal financial plan with goals and actionable recommendations.
The Financial Plan
The financial plan analyzed the unique circumstances Chris and his family were experiencing.
Life Insurance:
Given that Chris was the main source of income for the family and there was little family savings, it was recommended that Chris obtain a 10-year term life insurance policy for $1.2MM. The death benefit of $1.2MM would be used to support the family’s lifestyle if Chris were to die prematurely.
Wills:
The plan also recommended that Chris and his spouse finalize their Wills with the goal of distributing their assets in a tax-efficient manner and according to their wishes. This was very important given their young children and a rapidly growing business.
Tax Planning:
The bulk of the family’s wealth at the time the financial plan was finalized was concentrated in two assets: the principal residence, valued at $1MM that was jointly owned by Chris and his spouse (with no mortgage) and the business, owned 100% by Chris with a market value of $3.5MM and an adjusted cost base of $10,000. The plan recommended that Chris initiate an estate freeze and reorganization of his business in a manner that allowed the family to maximize the full benefit of the $883,384 lifetime capital gains exemption (LCGE) on the disposal of qualified small business corporation shares (QSBCS).
Action
The benefits of taking swift action to implement the strategies recommended in Chris’ financial plan are for the most part measurable. A financial planner will provide calculated amounts from simulated models under various alternatives. For example, if we know the family’s annual lifestyle needs ($), the number of years the income support is required, and we use a projected rate of return, we can determine the death benefit required. With respect to finalizing the Wills and tax planning, a financial plan also can provide a good estimate of the dollar amount of the tax benefit when properly completing a tax-free rollover, an estate freeze, and a corporate re-organization. And, not to be underestimated, the actioning of the financial planning recommendations also fulfills the psychological aspect of peace of mind.
Inaction
Sometimes the financial planning recommendations are not implemented, due to procrastination from the decision makers in the family, an unexpected life changing events such as the death of a family member, or the need to sell the business because of an exceptional offer received that could not be refused by Chris. In these circumstances, the tax benefits recommended in the financial plan would be lost because of the failure to take action.
Conclusion
The facts are overwhelming that the recommendations provided in a financial plan should be actioned as soon as possible so that the benefits are fully realized. Remember that time is finite and delaying is your enemy given the potential for unforeseen life changing events. Kerr Financial has over forty years of experience working with Canadian families to both develop and execute their financial plans. Contact us to learn more.
