Jim and Beth:
The Insured Pension

The Family

Jim and Beth are looking forward to retirement. They are in their late 60s now and have run two separate and successful businesses for almost 40 years. Their son Adam has been working alongside them in their main business for 20 years. Adam has really contributed to the bottom line of this business and has put his own equity in as well. Jim and Beth’s daughter Tina has become a successful engineer in another city, so will not be involved in either business.

The Challenge

For Jim and Beth, there are three main concerns:

  1. Having just sold their second business, they want to invest the proceeds of that sale in a way that gives them a good safe retirement income for life.
  2. Their son Adam should be able to take over the main business as a strong going concern, with as little tax and cost as possible.
  3. They want to leave all of their other assets to Tina, in order to treat her family fairly from an estate perspective.

To achieve their goals, Jim and Beth face some important investment decisions. If they buy only safe investments with their retirement fund, with the curve, they could run out of money during their life and deplete Tina’s estate substantially. On the other hand, if they choose stocks and equity mutual funds, they could experience huge volatility and still not meet their income and estate planning goals. And then there is the issue of the taxes that will become due when ownership of the business is transferred to Adam: as much as 50% of the value of a business can be lost to tax when transferring ownership to a child.

The Strategy

By taking a slow, methodical approach to understanding Jim and Beth, their retirement goals and estate planning concerns, we were able to develop a solution that covered all the bases:

  • We used the proceeds from the sale of their second business to buy a pension-style account. That account will provide income to Jim and Beth for life, with pre-tax equivalent yields more than twice that of current GICs or bonds.
  • When Jim and Beth are gone, all of the proceeds invested will be returned to their daughter for free.
  • By working closely with Jim Beth, accounting and legal, we were able to restructure their main business so it can be owned by Adam with very little tax or financing costs.

If you would like to learn more about this strategy, feel free to contact us.