Question

RISK MANAGEMENT

Background

Paul , age 55, immigrated to Canada from Scotland in his 20s. Over the years, he built a small chain of budget-rate hotels in the GTA and has become wealthy beyond his dreams. His private corporation, Nessie Inc., owns the hotels and, in some cases, the land on which the hotels are built.

Paul and his first wife divorced years ago and she returned to Scotland. He has no ongoing obligations toward his first wife and is now happily married to Lisa, 45. He has a son, Gavin, 28, from his first marriage and a daughter Leslie, 17, with Lisa. Gavin is actively involved in his father’s business and Lisa wants Leslie to become involved also.

Information Gathering Meeting

At your first meeting with Paul, you gathered the following information:

Paul

Personal Assets	FMV	ACB
Home owned jointly with Lisa	$1,800,000	$800,000
RRSPs	$500,000
Non-Registered Portfolio	$1,000,000	$900,000
Corporate Assets/Liabilities	FMV	ACB
1000 Common Shares of Nessie Inc.	$8,000,000	$0

Lisa

• Not employed
• Serves on the board of the Toronto General Hospital Foundation
• Home jointly owned with Paul
• Other Personal Assets:

Personal Assets	FMV	ACB
RRSPs	$200,000
Non-Registered Portfolio inherited from parents	$700,000	$400,000

Gavin

• Employed by Nessie Inc.; reports to a General Manager who reports to Paul

Leslie

• Full-time student. Note: Leslie has a new boyfriend, 25, who the family thinks may be a drug dealer.

Planning to Date

On her marriage to Paul, Lisa purchased a Universal Life policy with a death benefit of $500,000 and named Paul beneficiary. She did not name a contingent beneficiary. Paul and Lisa recently purchased a joint and last-to-die Term-to-100 insurance policy with a death benefit of $2,000,000. Their respective estates are beneficiary. This is their only personal life insurance.

Paul and Lisa have both named each other as beneficiaries on their RRSPs.

Paul plans to expand his business and projects that Nessie will continue to grow at 6 - 8% per year. He expects that Gavin will take over the business eventually, as long as he proves himself capable. He hasn’t given any thought as to whether Leslie will eventually join Nessie.

Paul and Lisa have met with their lawyer to discuss their wills but the wills haven’t been drawn up yet.

• In Scenario Two Paul and Lisa are still living and looking for detailed estate planning

Scenario---Paul and Lisa’s accident was just a terrible nightmare. They are still living but the nightmare has scared them both. They want to make sure that an appropriate estate plan is in place as soon as possible.

QUESTION :

What steps should Paul take to further facilitate the viability of Nessie in the event of his sudden death? (300 words)

RISK MANAGEMENT

Background

Paul , age 55, immigrated to Canada from Scotland in his 20s. Over the years, he built a small chain of budget-rate hotels in the GTA and has become wealthy beyond his dreams. His private corporation, Nessie Inc., owns the hotels and, in some cases, the land on which the hotels are built.

Paul and his first wife divorced years ago and she returned to Scotland. He has no ongoing obligations toward his first wife and is now happily married to Lisa, 45. He has a son, Gavin, 28, from his first marriage and a daughter Leslie, 17, with Lisa. Gavin is actively involved in his father’s business and Lisa wants Leslie to become involved also.

Information Gathering Meeting

At your first meeting with Paul, you gathered the following information:

Paul

Personal Assets	FMV	ACB
Home owned jointly with Lisa	$1,800,000	$800,000
RRSPs	$500,000
Non-Registered Portfolio	$1,000,000	$900,000
Corporate Assets/Liabilities	FMV	ACB
1000 Common Shares of Nessie Inc.	$8,000,000	$0

Lisa

• Not employed
• Serves on the board of the Toronto General Hospital Foundation
• Home jointly owned with Paul
• Other Personal Assets:

Personal Assets	FMV	ACB
RRSPs	$200,000
Non-Registered Portfolio inherited from parents	$700,000	$400,000

Gavin

• Employed by Nessie Inc.; reports to a General Manager who reports to Paul

Leslie

• Full-time student. Note: Leslie has a new boyfriend, 25, who the family thinks may be a drug dealer.

Planning to Date

On her marriage to Paul, Lisa purchased a Universal Life policy with a death benefit of $500,000 and named Paul beneficiary. She did not name a contingent beneficiary. Paul and Lisa recently purchased a joint and last-to-die Term-to-100 insurance policy with a death benefit of $2,000,000. Their respective estates are beneficiary. This is their only personal life insurance.

Paul and Lisa have both named each other as beneficiaries on their RRSPs.

Paul plans to expand his business and projects that Nessie will continue to grow at 6 - 8% per year. He expects that Gavin will take over the business eventually, as long as he proves himself capable. He hasn’t given any thought as to whether Leslie will eventually join Nessie.

Paul and Lisa have met with their lawyer to discuss their wills but the wills haven’t been drawn up yet.

• In Scenario Two Paul and Lisa are still living and looking for detailed estate planning

Scenario---Paul and Lisa’s accident was just a terrible nightmare. They are still living but the nightmare has scared them both. They want to make sure that an appropriate estate plan is in place as soon as possible.

QUESTION :

What steps should Paul take to further facilitate the viability of Nessie in the event of his sudden death? (300 words)

Answer 1

Given below the assets and other info of paul :

Personal assets    Fair amrket value(FMV) Adjusted cost base(ACB)

Home owned jointly with lisa $1,800,000 $800,000

Registered retirement savings plan   $500,000 -

Non-registered portfolio $1,000,000 $900,000

Corporate assets/liabilities    FMV ACB

1000 common shares of Nessie Inc. $8,000,000 $0

Other personal assets :

Registered retirment savings plan $200,000 -

Non-registered portfolio inhereted from parents $7000,000 $400,000

Lisa has purchased a universal life policy which is $500,000 which she made paul the only beneficiary and they also had term insurance policy which is the only personal policy of $2,000,000.

Both lisa and paul has the registered retirement savings plan(rrps).Also paul estimated that the nessie company whould grow upto 6-8%.

So,Gavin would take the company because paul and lisa had met with an accident and also leslie has also not shown any interest in takeover.

The major steps that paul might need to take for the company is :

1) Make a will : For any estate plan the will must be transfered for him/her for future requirements.

2) Consider a trust : if you hold your property in a living trust your surviours wont have to go through probate court a time consuming and expensive process.

3) make health care directives: writing out your wishes for health care can protect you if you become unbale to make medical decesions for yourself

4) Make a financial power of attorney : with a durable power of attorney for finances you can give a trusted person authority to handle your finances and property you become incapacited and unable to handle your own affairs

5) protect your childerns property: you should name anadult to manage any money and property your minor childern may inherit from you

6) file beneficary forms : naming a bineficary for bank accounts and retirements plans makes the account automatically payable on death to your beneficiary and allows the funds to skip the probate process

7) consider life insurance : if your have young childern or own a house or you may own significant debts or estate tax when you die life insurance may a good idea

8) understand estate taxes : most estates more than 99.7% wont owe federal estate taxes for deaths in 2017 the federal governement will impose estate tax at your death on if you taxable estate is of particular value