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Protect Your Family with Three Key Actions

April 21, 2020

Protect Your Family with Three Key Actions

Synopsis
5 Minute Read

We outline areas to explore or revisit to ensure your plans are up to date.

Tina Di Vito
Tina Di Vito, CPA, CA, CFP, TEP, FEA
Partner, Family Office Services
Insight
Progress Insight

COVID-19 is impacting all areas of our lives. You can mitigate the impact to your family by acting now in these three areas.

Hold a Virtual Family Meeting

Your family members may feel anxious about the state of the family business or their personal situation because of the constant change caused by the pandemic. Host a virtual family meeting to be transparent, explaining what you know and what you don’t know, and work with them to develop a roadmap out of this period.

After reviewing family values, vision, mission and goals here are some questions to answer during the meeting:

  • Are we communicating effectively with family members not working in the business about business impact and strategies?
  • How is the family dealing with social distancing and will family meetings/gatherings be delayed or can they be done virtually?
  • How can we use this opportunity to educate and prepare future leaders?

Before the meeting, you should also ask your family about questions they may have and prepare answers that help them feel supported.

Preserve Your Wealth

The financial markets are taking a toll on personal and corporate finances. While it’s important to take a long-term approach and not make hasty decisions, there are some things that you can do now in regard to succession planning and the financial markets.

Succession planning is an important step in preparing and preserving wealth for future generations. A strategy that is often used to pass assets onto the net generation is an estate freeze. With an estate freeze, the current generation freezes or fixes their value and future growth would belong to others.

If you have been thinking about succession planning, this may be a good time to implement such a strategy.

On the other hand, if you have undertaken an estate freeze in the past and asset values are significantly impaired today, this may be a good opportunity to take action that will re-set the value of the estate freeze to today’s lower values.

When it comes to capital markets, an Investment Policy Statement (IPS) is an important document as it provides information and instruction to your investment manager as to how your money should be invested to meet your short and long-term goals and needs within your personal tolerance to risk and volatility. Once complete, an IPS will define the portfolio’s asset allocation – how the money will be invested and should be reviewed annually or when circumstances change – like now.

  • Review your current asset allocation and discuss with your investment advisor if any changes should be made to rebalance the portfolio.
  • Are there investments in a capital loss position (market value below your cost) and does it make sense to trigger the capital loss? When you file your personal or corporate tax returns, net capital losses can be carried back three years to offset capital gains that were previously reported and recover taxes paid.

Considerations:

  • Watch the superficial loss rule which denies the loss if the investment that was sold is repurchased within 30 days
  • Do not trigger any loss within a registered account (RRSP/RRIF/locked-in plan or TFSA) as the resulting loss will have no benefit
  • For investment accounts in a corporation, be cautious of the impact on the capital dividend account
  • For investment accounts owed personally, any capital losses realized in 2020 will first offset any capital gains in 2020 and only the excess loss can be carried back to other years

Review Your Philanthropic Plans

Business families are aware of the economic and social impact their business has in the communities they serve. Philanthropy is an effective way to demonstrate family values and to engage and educate the next generation. Bring the family together to discuss your approach to philanthropy.

  • Review your pledge obligations – will you be able to fulfill those commitments / timelines?
  • Review family values to determine if support should be re-directed to areas of immediate need.
  • If you were planning on donating appreciated securities, and they have declined in value, will this impact the timing or amount of the donation?
  • Review the tax implication to the donor(s) in order to ensure the maximum tax benefits in fulfilling the pledge obligation

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