You’ve spent the last several decades working on your business, and it’s finally the right time to make the sale. Yet, one critical step that many ultra-high-net-worth individuals and families often overlook in the time leading up to, and during, what is likely the most significant transaction of their life, is addressing the personal and family side of the business exit. This includes estate plans, philanthropy initiatives, and lifestyle sustainability needs.
It’s important to work on your asset, wealth, and estate plan simultaneously when dealing with your merger and acquisition advisors — so you can avoid any permanent loss of capital, ensure you maintain your lifestyle, and consider your legacy.
Effective wealth preservation and transfer after a business exit
The sale of a business prompts a reassessment of long-term financial goals for ultra-high-net-worth individuals and families. Questions that may be on your mind include:
- How will I fund my lifestyle for the remainder of my life now that I don’t have any incoming capital?
- How can I generate more wealth with my current assets?
- How can I ensure enough wealth for my family and loved ones?
- How can I develop a strategy for the philanthropic initiatives my family is passionate about?
- What strategies can I implement to limit the intergenerational erosion of wealth?
The answers to these questions all lie within a comprehensive asset, wealth, and estate plan. “Just like you’ve had a business plan to successfully run your company, you need a family wealth plan to effectively manage your capital after the sale of your business,” says Jeff Noble, Director at BDO’s Private Wealth Family Office. “If you want to optimize your wealth, you have to start planning before the sale of your business because effective planning takes time.” More and more business owners are including wealth management as an integral part of their collaborative deal team.
Comprehensive asset, wealth, and estate plans project your lifestyle needs, consider the amount of risk you’re willing to tolerate, and provide detailed capital forecasts. They also paint a clear picture of how your family’s estate is going to evolve over time. The goal is to optimize your wealth for the long term. Without such a plan, there is a real risk of permanent loss of capital or running out of capital earlier than expected.
Here’s what to consider as you develop your asset, wealth, and estate plan:
Estate planning
Inadequate estate planning can be a burden on your loved ones during a difficult time, which is why it’s so important to consider your estate before you exit your business.
If you only think of maximizing capital, you may not be able to sustain your current lifestyle or enjoy your wealth after you sell your business. However, when you shift to an optimization mindset, you take into consideration your ongoing liquidity needs to fund your lifestyle while still ensuring your family is taken care of after you pass. Many estate plans also include tax plans and philanthropic initiatives. This is a true legacy mindset.
By working with investment counsellors and portfolio managers in your estate planning, you can help preserve capital and produce the right distribution of capital for maintaining your lifestyle. Effective planning takes into account all of your liquidity needs as well as your risk tolerance. We noted more ultra-high-net-worth individuals turning to life insurance as an integral part of their estate planning strategy to provide liquidity to the executor of their estates, in order to have the financial support needed to carry out their duties. These include looking after successors and beneficiaries, as well as tax obligations. Strategic use of life insurance provides a solution to support the transfer of wealth to the next generations.
Philanthropic and legacy planning
Many ultra-high-net-worth individuals combine estate planning with philanthropic efforts to create a more comprehensive legacy strategy. Without a philanthropic initiatives plan in place, there is a missed opportunity to provide meaningful support for causes that are important to you, your family, and your community. We are experiencing a positive shift in the role of philanthropy within wealth and legacy planning.
“Philanthropy was often an afterthought — a byproduct of tax planning,” says Noble. “Today, that is no longer the case. We are seeing the rise of the intentional philanthropist. Ultra-high-net-worth individuals are making strategic decisions of how much to give and who to give to based on causes important and often personal to their families.”
In philanthropic planning, there are three main options:
In addition to benefits such as tax advantages, legacy building, and alignment across the family, philanthropic planning provides you with the opportunity to decide when to give — such as before or after your passing. A foundation, whether a private or a donor-advised fund, uses a portfolio to fund ongoing charitable interest.
Lifestyle sustainability planning
Maintaining your current lifestyle post-sale while ensuring your wealth can sustain you through retirement can be difficult without a plan — especially if you’re unsure about how much liquidity you require each month. Creating a family balance sheet can help you avoid financial misalignment with your long-term goals, helping you ensure your day-to-day needs are taken care of while optimizing your capital. Lifestyle sustainability planning involves working with a professional advisor to create a detailed net worth statement that includes your assets and your monthly cash flow needs.
Work with professionals who can see the whole picture when planning for lifestyle sustainability. You’ll also be able to set aside a rainy day or contingency fund so that you always have a cushion to fall back on if you need it.
Start planning before the sale of your business
Starting and running your successful business has helped you hone your skills of generating a good return on the capital invested in your operating company. However, the skills needed to preserve and grow capital after the sale of your business are very different.
Professional advisors can help you develop an asset, wealth, and estate plan with a diversified investment portfolio, taking into consideration your lifestyle needs and philanthropic initiatives. “The key is to engage with a team of professional advisors who are willing to work collaboratively to help you achieve your personal, family, and legacy goals,” says Noble.
How BDO can help
Our Wealth Management and Family Office services for ultra-high-net-worth individuals take a highly personalized approach, offering support in tax planning, investment planning, lifestyle, estate and legacy planning, and more. We take the time to understand your unique financial situation, goals, and values, providing a holistic approach to wealth management.
For more information on how BDO can help you plan your life and your legacy, contact us today.
The information in this publication is current as of October 16, 2024.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.