CASE STORIES

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Insurance

Business Owner Saves $1.5 Million

A 75-year-old business owner had not reviewed his life insurance portfolio for nearly 15 years. Over that time his assets had grown considerably until he and his family were facing a considerable tax bill on the capital gains of his real estate and operating business.

We were asked to review his insurance portfolio and we were able to save him over $1.5 million by reducing or eliminating premiums.

We arranged for a significant tax-free reimbursement from his corporations, helped him avoid continuing a life insurance policy that was a financial disaster costing him more premiums than the death benefit and reduced personal and capital gains taxes.

Quick Facts

Who should care: Successful business and real estate owners who (a) own life insurance policies and (b) have experienced significant capital gains

Dangers avoided or mitigated:

  • Over paying for insurance – wasting money on a poor investment
  • Forced to pay significant capital gains taxes – damages business’s strength upon ownership transition – and/or – significant, unnecessary reduction in family wealth


Opportunities discovered

  • Life insurance can be managed for optimum performance (much like real estate properties are managed)
  • Strategies exist that can shield businesses and families from unexpected and burdensome tax liabilities

Causes

  • One-Dimensional Risk Management
  • The Passive Confidence Trap
  • CRA will “triple-dip” taxes if you allow it


Actions Taken

  • LIVO Analysis
  • Implement LIVO strategies
  • Acquisition of appropriate new insurance
  • Performance management of existing insurance
  • Elimination of poor-performing, too expensive policy
  • Designed optimal financing structure
  • Ongoing performance optimization management


Outcomes

  • Immediate savings of $1.5 million in life insurance premiums
  • Capital gains related tax liability significantly mitigated – total taxes reduced by 50%

Business continuity

Get it in Writing

Additional, unnecessary risk is created when a key person keeps a lot of the logistical details of multiple real estate development projects in his or her head.

Of course, delegation is necessary, but unless a well thought out business continuity plan is in place, things can go very wrong.

We have worked with multiple clients in situations where the real estate development is occurring on many stages and levels including buying land, budgeting, financing, securing rezoning, architectural design, permitting, construction, sales, mortgage financing and more.

Key players in the business and the family need to communicate and record the various stages of development and mentor their teams so they can cope with unexpected challenges along the way.

For business continuity purposes we encourage the owners and management to make sure paperwork is in place to ensure successful ownership and leadership transitions, key people are retained, and the business can continue to operate with enough cash and financing so that even the biggest surprises can be overcome.

Quick Facts

Who should care: Real estate developers

Dangers avoided or mitigated:

  • Loss of key player stalls or stops development project
  • Project budget balloons


Causes

  • One-Dimensional Risk Management
  • The Passive Confidence Trap

Opportunities discovered

  • Mentoring and preparing junior team members increases their value to the company


Actions
Taken

  • Identify Key Personnel
  • Develop critical information recording and sharing protocol
  • Review, update ownership structure and documentation
  • Develop company-wide continuity plan


Outcomes

  • Worry-free, efficient transition when the unexpected happens
  • Great over-all efficiency

Business Transition

Trust, Transparency, Accountability

We have managed many successful business ownership transitions.

The key ingredients of success when a partnership of multiple owners are wishing to retire and sell of their individual interests to younger owners and business leaders are trust, transparency and accountability.

The next generation of owners can be children of original partners, key employees, or new entities (including venture capital companies).

We work with both the retiring owners and the new owners to create clear and transparent models of communication and trust among all stake holders. For example, we will conduct full disclosure meetings that include both business active and non-business active children, all spouses and often, their trusted advisors (e.g.: CPA, attorney, and other specialists).

When appropriate, we help our clients chose a select group of specialists to help navigate the sale. This can include the purchase of shares from his/her partners, and supporting business active children, key employees or other shareholders into ownership via financing and special compensation arrangements.

With all of our clients, we ensure business continuity by focusing on the need to mentor and prepare the successors. We equip and empower their success by making sure the company is properly funded to complete the transitions in the event of premature death or incapacity of any owner or key personnel.  

Quick Facts

Who should care:

  • Business owners planning retirement.
  • “Next Generation” business buyers.


Dangers
avoided or mitigated:

  • Owners unable to sell when, how and to whom they desire
  • New owners saddled with unsustainable debt and cash flow pressure


Causes

  • The Expert Expediency Dilemma
  • One-Dimensional Risk Management
  • The Passive Confidence Trap


Opportunities discovered

  • New buyer empowerment, skills and capabilities development opportunities
  • Business success – legacy – confidence

Sellers and buyers feel treated fairly – win/win results

Actions Taken

  • Full disclosure meetings and ongoing communication
  • Accurate, timely business valuation
  • Rationalized business structures including ownership
  • Current and future owners protected from unexpected dangers (e.g.: premature death of other stakeholders)


Outcomes

  • Worry-free, efficient transition even if the unexpected happens
  • Greater confidence and certainty of business success – business legacy
  • Sellers and buyers feel treated fairly – win/win results for all

Fair and Equal Are Not the Same

Many dozens of wealthy family leaders come to us because they are having sleepless nights trying to figure out how to split /share their significant assets among their families.

We start by helping them make a clear distinction between fair and equal.

On the most basic level, passing equal operating business ownership to family members who have had or want nothing to do with family business – for the sake of fairness – is almost always a grave error.

Experience has proven ownership should remain with those who have a passion for the business.

When larger businesses have a management team who are running it for the family, and it is an asset in the family wealth portfolio, and not the primary employment for the family, a Family Charter is needed. Through the charter, the family develops policies and procedures for understanding the responsibilities of ownership and fair compensation as it relates to the assets.

The difficulty comes from having no plan and worse, no real disclosure of what the assets are and what family members can expect as an owner, whether business active or not.

While each case is unique, our work developing Family Wealth Charters, Family Constitutions, conducting effective Family Meetings, assessing potential leadership candidates, and enlisting trainers and finding educational opportunities to prepare them has helped our clients avoid what can otherwise be a transition train wreck.

Quantitative outcomes include protecting wealth from double or even triple taxation, making sure proper funding is in place to pay tax liabilities, repaying financing, relieving retiring owners of personal guarantees, and creating effective funding mechanisms to ensure transition success.

Qualitative outcomes are more difficult to measure but no less vital. We focus our processes, experience, resources and capabilities on protecting and improving family harmony, giving each family member a fair opportunity to achieve their full potential, and leveraging the power of the wealth you have created.

Quick Facts

Who should care:

  • Wealthy business families with business active and non-business active children.


Dangers
avoided or mitigated:

  • Children feel unfairly treated
  • Business harmed by disinterested, ineffective owners
  • Loss of key personnel
  • Business structures creating unnecessary complexity, financial liability and friction


Causes

  • The Expert Expediency Dilemma
  • The Passive Confidence Trap

Opportunities discovered

  • Untapped human potential hidden within the family and essential personnel


Actions
Taken

  • Create Family Wealth Charter and Constitution
  • Next generation leadership evaluation and empowerment
  • Rationalized business structures including ownership


Outcomes

  • Successful transition
  • Greater family harmony
  • Family wealth protected
  • Human (people) capital more fully developed and deployed