Making The Tax-Free Savings Account Fit For Your Life

As of January, 2009, Canadians have a new tax-free option for saving – the Tax-Free Savings Account (TFSA). TFSAs are a flexible investment vehicle into which you can make non-deductible contributions (up to $5,000 per adult in 2009) that will grow and can be withdrawn without incurring taxation. Withdrawals can be made at any time for any purpose. Unused contribution room can be carried forward indefinitely and any amounts withdrawn in a year will be added back to your contribution room in the following year.

So, how you use your tax-free TFSA dollars is totally up to you. But it’s a good plan to ‘fit’ your TFSA investment uses to your life stage. Here are some tips.

Young adults and young families

• Save for emergencies and large short term expenses -- like a vehicle, vacation or home down payment without having to liquidate investments and paying taxes on the income.

• Save for a home – in addition to or in place of the RRSP Home Buyers Plan.

• Save for education – in addition to or in place of non-registered savings, the RRSP Lifelong Learning Plan or RESPs.

• Save for your children – as a parent, you retain control of TFSA funds and when to disburse them.

• Save to start a business – TFSAs are a tax-effective way to save the initial equity you need and can be used as security for bank financing.

• Save for retirement – in addition to your RRSP contributions.
  

Mature adults

• Save for emergencies, large short term expenses and retirement, in addition to RRSPs.

• Save your tax refund – contribute your RRSP tax refunds to your TFSA.
  

Retirees

• Save for emergencies and large short term expenses.

• Shelter excess income from future taxation – if your combined retirement income (from RRSPs, pension, OAS and CPP) is more than you need to live on, build up a non-taxable reserve in your TFSA.

• Build retirement savings after RRSPs – you can’t contribute to an RRSP after age 71, but you can still invest in your TFSA.

• Build a tax-free inheritance for children – a TFSA can be transferred to a surviving spouse/common-law partner without affecting their TFSA contribution room. On the death of the second spouse, the children may inherit the total amount tax-free.

Your professional advisor can help you make the most of your TFSAs and other investments, at every life stage.

When It Makes Sense To Borrow For Your RRSP

Wealthy people often borrow to invest. They call this 'leveraging' or 'leveraged investing' - but what it really boils down to is using someone else's money to make your own investments. You don't have to be rich to benefit from the value of 'leveraging'. In fact, you may be able to take advantage of a 'leveraging' strategy right now that could help you save on taxes and could increase your potential retirement income at the same time.

If you're like most Canadians, your Registered Retirement Savings Plans (RRSPs) will be an important source of income during your retirement years. And, if you're like most Canadians (a whopping 78 per cent in the 2003 tax year[1]), you probably have unused contribution room in your RRSPs. To make the most of the potential tax-saving and income-building advantages of your RRSPs, you should fill up every bit of your unused contribution room as quickly as you can - and leveraging can be an effective way to do just that.

Borrowing in order to contribute to your RRSPs could pay off in two ways: First, you'll increase the size of your tax refund and second, you'll have more money growing inside your tax-deferred retirement plan. Here's an example: assume that your RRSP contribution limit is $3,000 this tax year. (The actual amount of your RRSP contribution room is provided on the Notice of Assessment you received from the Canada Revenue Agency after filing your tax return last year.) Depending on your tax bracket, a $3,000 contribution could net you nearly $1,500 in tax savings at the time you file your tax return in the form of a larger tax refund, while also potentially adding $30,188 to your retirement plan over 30 years (on a pre-tax basis, at an annual compound rate of 8 per cent ). And, that's for just a single contribution of $3,000!

The government allows you to accumulate and carry forward all your unused RRSP contribution room from previous years back to 1991. You can make up the unused RRSP contribution room at any time, but sooner is better because you'll have more money growing on a tax-sheltered basis inside your RRSPs.

The issues to consider from a leveraging strategy are these: Borrowing at a low interest rate and paying off the loan quickly, otherwise the cost of borrowing can diminish your potential tax savings and investment returns. Financial institutions often offer RRSP loans (which are really loans meant only for the purpose of contributing to your RRSPs) at prime rate or lower. For top-up loans, limit the payback schedule to one or two years.

[1]The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investments.

For larger loans, don't exceed five years. The leveraging strategy often works even better when you use your increased tax refund to repay the RRSP loan even faster.

Your professional advisor can help you map out an RRSP leveraging strategy that works best for you.

Giving While Living - Keeping It In The Family

You may be among the growing group who hope to pass on wealth to their children during their lifetime. A recent research study showed that the majority of Canadians (63 per cent) believe it's best to give children financial gifts while the giftor is alive.

The 'giving while living' trend has significant implications for tax and estate planning - and for your own lifestyle. That's why your first step toward making a 'giving while living' decision should be to take a critical look at your own finances. If you are certain your finances will allow you to make a gift, here are some other things to consider:

What should I give? The simplest answer is cash - but that may not be the best choice. When you give cash, you also give up any control over the amount you have gifted and you may not want to do that. One solution is to characterize your gift as a loan and take back a promissory note with appropriate security - that way, you can maintain a certain amount of control over the funds and the way they are used.

Another option is to give a 'non-cash' gift - maybe transferring stock to a child, or even the ownership of your family cottage - but, in that case, you will likely be triggering any unrealised capital gains. For example, if the gifted stock or cottage has appreciated significantly in value, most of that value will be subject to an immediate capital gains tax (currently the taxable amount is 50 per cent of the appreciated value).

Selling the 'gift' for $1 does not solve the tax problem and may, in fact, make it worse. When assets are given to someone 'at arm's length', the Canada Revenue Agency (CRA) deems that the donor received Fair Market Value (FMV) for the asset, no matter what it was sold for.

Should I put conditions on the gift? You can - some parents elect to 'gift' assets but only under certain clearly stated conditions. For example, you may want the funds back in the event of a marriage breakdown or if your child predeceases you and you don't want one of their heirs (perhaps a new spouse) to receive the funds. Any conditions like these should be specifically set out in writing. You should also check with a lawyer to ensure your wishes are legally binding.

Can I give a gift to a minor? Yes, and if it's a small gift, that's pretty straightforward. But if the gift is significant it may be wise to wait. For instance, a minor can't invest funds in their own name so future use of the gift can become problematic. In most cases, it's best to make a large gift to a minor in your Will.

If you are thinking of giving while living, you should do it in the context of your overall financial and retirement goals. A professional planner or financial advisor can help you make the best decisions for your situation.

Donate To Your Favourite Charity - And Save Taxes, Too!

Thanksgiving is over and even those we many still have leftovers in the fridge, the attention of many Canadians now turns to the Christmas season. In the spirit of the holiday season, you may think about 'gifting' your favorite charitable organization with a donation. That's a very kind and generous act, especially during a time of the year that can get pretty expensive.

So why not give a little gift to yourself - by reducing your income tax bill while contributing to a worthwhile cause. It's simple: instead of giving cash, give securities and you'll likely enhance the tax benefits of your donation.

Here's how it works: Tax rules make it possible for most donations of securities to registered charities and public foundations to escape capital gains taxation. For example:

You want to donate $10,000 and you have the choice of making the donation in cash or mutual fund units. Let's assume your marginal tax rate is 46 per cent, and you originally paid $4,000 to purchase your fund units which are now worth $10,000.

If you donate the cash, you can claim the charitable donation income tax credit for the entire amount, generating $4,600 in tax savings and reducing the net cost of your donation to $5,400.

You'll still have your mutual fund units, of course - but you'll probably pay tax on capital gains when you sell them. If you sold them now, you will realize a $6,000 capital gain which will generate a tax bill up to $1,380 (50 per cent of the capital gain of $6,000 multiplied by your 46 per cent marginal tax rate.)

Instead of donating the cash realized from the sale of your mutual funds, you donate your fund units to charity. You still get the charitable credit for your donation of $10,000 mutual fund units and the resulting $4,600 in tax savings - but you will have avoided paying the $1,380 in capital gains tax on the appreciation of value of those units because you made an 'in-kind' donation to the charity.

There are other tax-saving/donation options and a professional advisor can help you decide which are best for you. But remember, you need to act before December 31st to claim a tax credit for the 2009 tax year.

Planning For A Longer Life

Congratulations - if you're a senior or close to it, you're part of a terrific good news story: You are likely to enjoy a longer and healthier life than any generation before you.

According to Statistics Canada, life expectancy at the age of 65 continues to improve with Canadian men age 65 expected to live an average of 17+ years and Canadian women age 65 expected to live an additional 20+ years on average.

That is great news, but there is another side to your longer life: the need to extend your income over those years to ensure you continue to have a comfortable lifestyle. That could also include significant additional expenses for health care. You hope to remain healthy, of course, but statistics tell us that:

• 43 per cent of those over 65 will require an average of three to four years of long term care in a nursing home or long term care facility.

• 66 per cent of married couples will have at least one spouse enter a long term care, personal care or health care facility at some point.

• 28 per cent of Canadians age 65 and over who do not live in a health care facility are likely to receive care due to a long term health problem.

• 1 in 13 Canadians over age 65 is affected by Alzheimer Disease or related dementia.

You don't want to outlive your retirement savings or see them eroded by unexpected health care and medical costs. So, more than ever before, an effective retirement financial plan is an absolute necessity. Here are some planning tips to set you on the right path to a long and financially comfortable retirement:

• Add to your retirement income from your Registered Retirement Savings Plan with a well-chosen portfolio of non-registered investments. Look at investments that benefit from preferential tax treatment such as tax-advantaged investment structures.

• Consider Universal Life insurance as a means of sheltering excess capital while maximizing the value of your estate and/or a life annuity that will provide you with guaranteed regular income for the rest of your life, no matter how long you live.

• Protect your income (or your spouse's) with carefully selected insurance coverage that could include life insurance, supplemental health insurance, disability insurance, critical illness insurance, and long-term care insurance.

Planning for retirement has never been more important. A professional advisor can help you develop a retirement plan that will work for you through all the years of your retirement.

Home Equity - Your Retirement Income Key?

Are you ten to fifteen years away from retirement? If so, you probably have two things: A fair amount of debt from raising a family and a reasonable amount of equity in your home.

That debt could be an issue when you retire. When you have to devote a significant portion of your retirement income to paying debts, you'll have much less to support the retirement lifestyle of your dreams. That's why reducing or eliminating debt is an important step in preparing for retirement. Yet, when you look at your current income and 'outgo', you may be a bit perplexed about where that extra debt-reduction money will come from. Think: 'home equity'.

Home equity is the difference between the market value of your home and the balance of your home mortgage debt. Over time, you can build a good amount of equity because your home's value usually increases while your mortgage balance reduces. Here's how you can use home equity money to get out from under debt:

Downsize Your family is gone and your current home now seems 'too big' so replace it with a smaller one at a lower price and use the difference to pay down debt.

Restructure your mortgage By renewing your mortgage for a short term at a larger amount than you currently owe which is usually easy to do because of the appreciating value of your home - you can create extra cash to pay down other more expensive debt. Mortgage interest rates are generally lower than consumer borrowing rates and by keeping the term of your new mortgage short, you can pay it off before you retire.

Debt consolidation simply means paying off a number of higher interest rate loans or other high-cost debt (like credit cards with annual interest rates often in the 19 -28% range) by taking out a single loan at a lower interest rate for a consolidated overall lower monthly payment. You can work out a repayment plan that can allow you to move from simply servicing your debt balances to actually eliminating them and by paying less interest monthly, you'll create additional cash flow that can be used towards your retirement or other financial goals.

Will your home equity be the key to a more comfortable retirement? Be sure about that and every other aspect of your financial life by talking it over with a financial professional.

Can 'Green' Investments Power Your Investment Growth?

'Green' investments are rapidly gaining in popularity for a couple of very good reasons: first, growing numbers of Canadians are seeking out 'socially responsible' investments that have a positive environmental and social impact as well as providing reasonable returns; and second, because 'green' industries are a fast-emerging market sector with a potentially unlimited upside.

Take the 'green' energy sector, for example: Worldwide energy demand is expected to increase by more than 50 per cent in the next 25 years, so it's no surprise that the demand for clean, alternative energy sources is stronger than ever.

Producing and transporting alternative energy requires new technologies, new companies - and most importantly the ability to raise new capital. One research firm estimates more than $60-billion was invested in the alternative energy industry worldwide in 2006, more than double the amount spent in 2004.

The potential rewards would seem to be considerable and making an investment in alternative energy could appear to be a slam dunk but there is also risk.

The challenge isn't finding alternative energy companies there are plenty to choose from the problem is finding the right alternative energy investments. Like any other investment opportunity, you should seek out diverse, fundamentally sound players with the potential for growth and profits.

Here are some important alternative energy investment considerations:

• Potential market share. Will a company's products be sold and distributed in North America, or around the world? What is the intensity of the competition? How well-funded are competitors?

• Manufacturing scale. Can a company design and manufacture its product in a cost-effective manner that allows for healthy profit margins?

• Government regulation. Regulations increasingly favour alternative energy sources. But they vary according to jurisdiction, and are constantly evolving. How will they affect a particular business?

• Incentives. Alternative energy incentives are becoming more common, with government tax breaks and subsidies for producers and consumers. How might these benefit an alternative energy investment?

• Technology risk. Today's promising product can be tomorrow's failure, especially if it's overtaken by newer technology. This can quickly alter the investment landscape.

• Product acceptance. Not every good idea meets with market enthusiasm. For example, when using new fuels, will the consumer be able to drive as far, and can they re-fuel conveniently?

• Management experience. With hundreds of companies starting up and getting funded, seasoned management teams are more likely to be able to navigate unforeseen developments.

A good way to be comfortable that you've made the right alternative energy investment choice would be to let an expert make it for you - by investing in a socially responsible mutual fund that has already identified a group of alternative energy and/or other socially responsible companies with the most assured potential. A professional advisor can help you go 'green' in the most powerful way for you.

The Cottage Hand-Off - Who Will Receive?

It's your cottage now, but whose will it be in the future? Your family has always had a great time there, so it's natural to assume you'll simply hand it off to your family after you're gone. But have you asked your adult children if that is really what they want? And if it is, will they be financially able to keep it in the family? Here are a few steps you should take to make sure you don't fumble the cottage hand-off.

Have a cottage conversation

Sure, your adult children have always enjoyed the cottage - but will they in the future, when you are no longer around? You know that owning and maintaining a vacation property is a big responsibility and it's not for everyone. That's why you should talk it over with your children now. Find out who wants to take on the responsibilities of ownership and who doesn't. Then make arrangements so your non-cottage inheritors will be treated fairly in your will. That way family squabbles can be avoided.

Make the hand-off less taxing

Plan now to avoid a stiff tax liability when the hand-off occurs. Unless you're passing assets to a spouse, when you die you're deemed to have disposed of your capital assets at fair market value. If your cottage property has appreciated in value, your estate will face a significant capital gains liability. You do have the benefit of a principal residence tax exemption but it applies to just one property at a time. That can be either your cottage or your city home but the one you don't choose will be subject to tax on its increased value.

There will also be tax consequences if you leave the property to your children in your will. A better alternative may be to transfer the property to your children while you live. You can do that as an outright gift of the property or by making one or more of your children joint owners of the property (with or without you as joint owner). You can also transfer the property to a trust, with your children as beneficiaries. Each of these transfer options may trigger an immediate capital gain - but future capital gains on the property will accrue to your children and are not payable until they sell or transfer the property.

A trust also offers the benefit of allowing you to maintain control of the property during your lifetime or through an independent third party (the 'trustee' - who could by your executor) after you die. This can be an effective alternative to manage conflicts over the cottage. Or, if your children are too young or otherwise not ready to take on the responsibilities of ownership, the cottage may be held in the trust until they are ready.

Life insurance can also be a good strategy for covering capital gains taxes on your cottage. The death benefits from the policy are usually tax-free and can be used as a ready source of cash to avoid the forced sale of estate assets, like your cottage, if other funds are not available to pay the capital gains taxes.

It's a good idea to think about your wishes for your cottage as part of your financial and estate plan. A professional financial advisor can help you work through the options that make the best sense for you.

Does A Tax-Free Savings Account Fit Your Retirement Plan?

Is a TFSA a good addition to your retirement planning? Yes, when you make it a part of your overall financial plan that includes your most important tax-saving, income-building investment – your Registered Retirement Savings Plan.

Here’s a quick comparison of the TFSA and an RRSP:

• RRSP contributions provide an immediate tax benefit because they are directly deductible from income. Contributions to a TFSA cannot be claimed as a tax deduction.

• Withdrawals from a TFSA are not taxed when withdrawn. RRSP withdrawals are added to income for tax purposes.

• The maximum yearly investment in a TFSA is $5,000 (although you can have more than one Account as long as you do not exceed the $5,000 limit in total). The RRSP contribution maximum is determined by your earned income. (In 2009, the maximum RRSP contribution limit is $21,000.)

• Generally, the same investments are ‘eligible’ for either a TFSA or RRSP – mutual funds, publicly-traded securities, government bonds, GICs, and segregated funds.

• TFSA funds can be withdrawn at any time for any purpose. RRSP funds are typically not withdrawn until after retirement.

• Withdrawn amounts can be put back into a TFSA without reducing contribution room.

• Unused TFSA and RRSP contribution room can be carried forward to future years.

• Withdrawals and income earned in a TFSA will not affect eligibility for federal income-tested benefits and credits including, the Age Credit, Old Age Security benefits or Guaranteed Income Supplement.

• There is no time limit at which a TFSA must be wound up or converted to a different investment. RRSPs must be wound up or converted by the end of the year when a person reaches age 71.

In retirement planning, a TFSA can be a good option:

• When your RRSP is maximized. Because the income is not taxed, a TFSA will likely deliver better returns over the long term than other non-registered investments – but the tax-sheltered, tax-saving, compound growth features of an RRSP still make it a much better choice for long term growth.

• As an incentive to save that ‘little extra’ for retirement, especially for those with modest means because the savings will not reduce income-tested benefits.

Is a TFSA in your future? Your professional planner can help you answer that question in the most profitable way.

Life Insurance Can Be Part Of Your Retirement Plan

The right kind of life insurance can do much more than provide a tidy sum to your heirs. It can be a good, tax-deferred place to stash the cash you have left over after maxing out your RRSP contributions.

There are two basic types of permanent life insurance that allow excellent flexibility in building tax-advantaged savings and accessing the cash inside them:

· Universal Life is a type of policy that lets you vary the amount and timing of premium payments as well as allowing you to save money inside your policy, protected from taxation.

· Whole Life is a cash value life insurance policy that provides a specified level protection for a premium that will not change unless the level of coverage changes. It also includes a savings feature similar to a Universal Life policy.

Insurance can be a source of liquid savings

As you pay the premiums on your permanent life insurance plan, the cash value of your policy increases in value over time on a tax-advantaged basis. You can access the cash value of your policy in three ways:

1. Withdrawal - You permanently withdraw some or all of the cash value of your policy. This reduces the future growth potential of policy cash values and may reduce the policy's death benefit. Every dollar is taxable, and the amount withdrawn cannot usually be recontributed.

2. Policy loan - You obtain a loan from your insurer secured against the cash value of your policy and the policy continues to grow uninterrupted. For tax purposes, your loan is considered to be first drawn against the tax-free portion of your policy until that component is reduced to zero. After that any remaining portion of the loan is taxable. Loans can be repaid (or the amount plus any accumulated interest will be deducted from the proceeds paid to your beneficiary), and you will get a tax deduction for your repayment up to the amount of any taxable income you declared when you took the loan.

3. Collateral loan - You use your policy as collateral for a line of credit and your policy is assigned to the third-party lending institution. This option does not result in any taxable income to you. You'll usually pay interest on the outstanding balance of the loan and, if you die, the lender receives repayment of the loan (and any unpaid interest) from the proceeds of the policy, and your beneficiary gets any remainder.

By giving you the ability to accumulate tax-advantaged growth in cash value and tax-free benefits to your beneficiaries, permanent life insurance can be an important tool for you to consider. But keep two things in mind: Make your choices based on an overall plan aimed at reaching your financial goals and remember that tax laws can change - so be sure to consult a professional advisor who can help determine what's best for you.

Why Pay Tax On Money You Never See?

Based on their in-depth knowledge of the investing habits of Canadians, investment professionals estimate that half to two-thirds of all investable wealth in Canada is held outside registered savings plans (RSPs). That's understandable because most conservative investors take a practical approach to investing that seeks to reduce risk and volatility while delivering a desired level of returns over the long term - in other words, creating and maintaining a properly diversified portfolio with the best prospects for long term growth.

Often, those investors seek the safety of 'guaranteed' or 'fixed-income' investments such as bonds, mortgages, Guaranteed Investment Certificates (GICs), and other interest-generating securities, which generally provide a stream of income while preserving capital. (Fixed-income investments are one of the three basic types of investments; the other two are cash and equity).

The problem is that interest income is the least tax-efficient type of income. Every $1 of interest income is fully taxable, just the same as your employment income. So, if you are heavily invested in interest-generating investments, you are likely to incur a stiff tax liability each year -- even though you may not currently need that income. And, your tax liability becomes even more problematic if your investments produce taxable income each year but this income is automatically reinvested (or compounded), creating a tax bill with no corresponding cash flow to pay the tax.

It's your after-tax return that matters

Even though your interest income investments may be delivering a significant return, that return may also be significantly reduced by the high rate of taxes you must pay. One option is to move a portion of your non-registered investments into 'equities' that provide income from dividends and capital gains, which are taxed at a much more favourable rate than interest income. For example, any realized capital gains you receive from an equity investment are taxed at just 50% -- in other words, only 50 cents of every dollar of the capital gain is subject to tax.

Dividend income also benefits from federal and provincial tax credits that provide a fair degree of tax relief.

The Tax-Free Savings Account – Wow! Or Wow?

Last year in the 2008 Budget, the Federal Government introduced the ‘next big thing in tax reduction’ -- the Tax-Free Savings Account (TFSA. The TFSA became effective in 2009 and the question is: Just how much of a ‘Wow’ is the TFSA for everyday Canadians?

The government hails it as ‘the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP)’* and estimates that ‘a person contributing $200 a month to a TFSA for 20 years will enjoy additional savings of $11,045 compared to saving in an unregistered account.’*

That’s because a TFSA will allow you to use your savings to invest in eligible investment vehicles and the capital gains and other investment income earned in your TFSA will not be taxed. Here’s how it works:

• Starting in 2009, any Canadian over 18 years of age can save up to $5,000 each year in a TFSA.

• A person may have more than one TFSA but cannot exceed the $5,000 limit in total.

• ‘Eligible’ investments are generally the same as those allowed in an RRSP.

• Unlike RRSP contributions, which are deductible from income and reduce taxes, TFSA contributions do not qualify as deductions.

• Investment income, including capital gains, earned in the TFSA will not be taxed, even when withdrawn.

• TFSA funds can be withdrawn at any time for any purpose – from buying a new car to starting a business.

• Withdrawn amounts can be put back into a TFSA without reducing contribution room.

• Unused TFSA contribution room can be carried forward to future years.

• Neither income earned in a TFSA nor withdrawals will affect eligibility for federal income-tested benefits and credits – such as the Canada Child Tax Benefit, Age Credit, Guaranteed Income Supplement and Employment Insurance Benefits.

• Contributions to a spouse’s TFSA are allowed.

Investment experts suggest that a TFSA may deliver better after-tax value than some non-registered investments, certainly over longer terms. On the other hand, the experts also point out that what is ‘eligible’ for a TFSA and what is ‘suitable’ are two very different issues. For example, an investor may make very conservative – meaning low-earning -- choices for a TFSA because capital losses on more speculative investments will not be deductible – but that strategy may not be consistent with the investor’s overall financial goals and objectives.

Time To Step Away From Your Business?

Maybe not today or tomorrow, but one day in the not so distant future, you’re going to do it: Step away from your business and hand the responsibility for its operation to someone else.

But who will it be and how will you do it? There are plenty of tax, legal, financial and estate issues to consider – and that’s where business succession planning comes in. Here are some of the key elements you need to consider.

• Don’t leave things to chance. To avoid the loss of your business or its forced sale at substantially reduced value – and to ensure your family will have sufficient income to sustain the lifestyle you want for them – look to disability, critical illness and life insurance as a means of protecting what you’ve built.

• Make it legal. Establish a buy-sell agreement that sets out the terms and conditions under which your share of the business will be acquired by co-owners, partners or other stakeholders.

• Plan for retirement. If you will be relying on your business as a source of retirement income, you need a plan for converting its value to cash when the time comes. There are three basic ways to do that: Sell your business as a going concern to an outsider; wind it down while you slowly deplete its investments in a tax-efficient manner; or pass it on to a relative, co-owner or key employee.

• Prepare for the tax burden. The proceeds from the sale or transfer or your business could be subject to income and capital gains taxes. By planning now, you can minimize the tax that will be paid by you, your estate, or your heirs. For example, a family trust or estate freeze could effectively reduce taxes when you transfer ownership to family members.

Life insurance can be a cost-effective way of financing the succession without saddling the business with the need to borrow money.

• Put your wishes in your will. It’s critical that you make provision for the disposition of your business in your will, especially if you’re planning on passing it on to a family member after your death. Set out how the family member will acquire the business and avoid disputes by ensuring every family member is taken care of in an equitable way.

The ‘exit strategy’ you choose should be right for you and your family. To be sure you’ve got it ‘right’ get input from your accounting, legal and financial advisors and your family – that’s the best way to a successful succession.