Client Success Stories – Terry (TW Ltd.)
Client Facts
Client Information: Terry (age 51) & his company, TW Ltd.
Client’s Needs & Wants: Protect the value of his business in the event of his death
Problem
Terry is the owner of TW Ltd., a manufacturing company. Terry has sole ownership and control of the company and has built it from the ground up over the last 20 years. The majority of Terry’s net worth is tied to TW Ltd.; therefore, the lifestyle of his spouse and children are also tied to the value of the business. Due to the nature of operations, Terry is adamant that if he were no longer able to run TW Ltd., it would not be successful; in other words, the profitability and longevity of the business is directly tied to Terry’s availability to contribute on a day-to-day basis. The problem for Terry is clear: if he were to pass away, he wants his family to benefit from the intrinsic value of TW Ltd.
Solution
Business owner-operators like Terry often find themselves in similar predicaments – they have successful private corporations but the value is directly tied to their involvement. Although the business may have a multi-million dollar valuation, with the owner-operator no longer in the picture, the business is unfortunately worth significantly less (sometimes worthless). This is where corporate planning comes in and where we specialize.
After meeting with Terry and gathering all the key information, we recommended a tax-exempt corporate-owned life insurance policy with a death benefit directly tied to the current valuation of TW Ltd. Here is the structure:
Policy owner, payor and beneficiary: TW Ltd.
Life insured: Terry
In the event of Terry’s death, TW Ltd. would receive a tax-free death benefit. With adequate corporate planning, most or all of the death benefit can then flow tax-free from the corporation to Terry’s beneficiary or estate via the Capital Dividend Account.
Terry has effectively secured the value of his ownership in TW Ltd. His loved ones will receive fair market value for his life’s work in TW Ltd., and they do not need to stress over the ongoing operations of the company (something which would be identified in Terry’s will or his shareholder documents). While this is a surface level summary of using corporate-owned life insurance to protect family and business interests, it showcases how proactive corporate planning can have a profound impact on future generations, ensuring the blood, sweat and tears poured into growing a business is not derailed by unanticipated events.
Contact Jeff Graham at (604) 363-7549 or jeff@firstoakfinancial.ca for more information.
DISCLAIMER 1: client names have been changed to protect their identity.
DISCLAIMER 2: the above commentary is solely for information purposes and does not constitute tax, investment, insurance, legal or financial advice. Corporate-owned insurance is complex in nature and should be implemented with the help of an insurance specialist and tax/legal advisors.