Bill case study – client with advisors

In another post, I went through a case study of a client who wasn’t working with any advisors.

Now let’s look at a case where the client does have advisors, however, there is little communication between them!

‘Bill’ (Age 60) came to me after coming to a few of my lunch and learns and told me that he wanted me to come in and do a review of his corporate strategies.

He had an accountant that he was working with already and had some lawyers that he hired a few years prior to accomplish some corporate restructuring.

He also had 3 different financial advisors that he was working with, two of them focused exclusively on investments, and the third was a combination of insurance and investments.

Bill was married to Sherry and had two sons – John and Dave.

Click Here to see a visual representation

Here’s what I discovered he had after looking through all the financial and legal documents.

Legal – Prior

  • ABC Co. (100% Pref shares owned by Bill – common shares created in 2016 subscribed to from family trust)
  • Invest Co. – (100% Common shares owned by bill)
  • Family trust
  • Bill and Sherry were trustee’s
  • Bill, Sherry, John and Dave we’re beneficiaries

Here’s what the legal team did in 2016 – at the time Bill only has his operating company.

Bill engaged the legal team to purify his company as his goal was to sell within 5 years.

He had excess cash in his operating company which was not only a liability but also put him offside for his capital gains exemption.

The lawyers did an estate freeze of his operating company – swapping his common shares for preferred shares at a value of $1MM.

They then created a family trust as well as a new company called Invest Co.

The operating company issued new common shares to the family trust at this point allowing for all future value above and beyond the $1MM to be allocated to the family trust and distributed to the beneficiaries as the trustee deemed fit.

The operating company also had an excess $750,000 cash sitting inside it which was necessary to remove.

They executed a butterfly transaction to transfer the cash over to Invest Co. on a tax deferred basis and without triggering any tax implications from the new purpose test introduced in 2016.

Please keep in mind these transactions are extremely complicated and outside the scope of this email.

Investments – Prior

Bill had a variety of different investments with the 3 different advisors split between his personal and corporate investments.

This included registered accounts such as RRSP’s and TFSA’s as well as the corporate investments within his ‘Invest co’.

Insurance – Prior

Bill didn’t have any insurance in place – however he did previously apply for an insurance policy through one of the advisors. 

The insurance was never placed as Bill felt it was unnecessary and pressured onto him for unknown reasons.

Through conversations with Bill I discovered that he no longer talked with any of the lawyers as they over charged him, and he felt ripped off. 

He also felt his accountant didn’t fully understand the tax laws and wasn’t properly doing their job.

His two investments advisors we’re doing a great job – however he felt that the other advisor didn’t understand the insurance and estate planning thoroughly and was just trying to push products on him without understanding his needs.

None of the disciplines were communicating with each other, the accountant didn’t talk with the advisors and the lawyers were no longer in the picture.

After pouring through the legal closing agenda, financial statements, trust deeds, financial plans and investment accounts I discovered the following problems.

Legal – Discoveries

  • ABC Co. had $210,000 in cash sitting inside it
  • As per section 110.6 (1) of the ITA cash is deemed to be a passive asset for the purposes of the LCGE
  • ABC Co. had loaned $70,000 to Invest Co.
  • Inter-corporate loans are treated as cash since they will be repaid in cash – LCGE issue
  • Invest Co. was never made a beneficiary of the family trust – hence there was no mechanism to purify ABC Co. on an ongoing basis.
  • Bill’s trust only had two trustee’s who were also beneficiaries
  • As per section 75(2) and 107 of the ITA the trust may be deemed as a self-dealing trust and attribution rules may apply (Taxation applied all to Bill)

The lawyers missed a few crucial components moving forward to allow Bill to constantly purify his operating company so he could sell it off and claim his LCGE.

Bill’s accountant wasn’t effectively informed about LCGE rules and didn’t understand section 110.6.

The accountant didn’t understand how the cash and loan would be treated as passive assets in the company and assumed ‘getting the cash out’ meant loaning cash over to Invest Co. instead of paying it up via inter-corporate dividend.

At this point if Bill had either died or sold his company, he would be ineligible for his LCGE which was the entire reason he hired the legal company in the first place!

We recommended that Bill do the following to fix these problems:

  • Clear up loan
  • Add Invest Co as “corporate beneficiary” of family trust
  • Pay intercorporate dividend over to Invest Co to purify
  • Add friendly stranger as a trustee

Investments – Discoveries

  • Large focus on US and CA funds
  • Portfolio was under-performing the market over the past 5 years
  • Large overlap of shares in mutual funds
  • Low participation in up swings – but high participation in down swings
  • Tax inefficiencies within his investments
  • Leveraged account in the amount of $80k when Bill’s entire portfolio was close to $1.5MM – Not necessary

With 3 different advisors handling Bill’s investments he had quite a haphazard approach to his retirement planning.

Since none of the advisors talked to each other there was quite a bit of overlap in funds and risk.

He could have put his entire portfolio into a passive index and been better off over the last 5 years.

Insurance – Discoveries

  • No insurance in force – advisor had recommended purchasing a 20 pay whole life policy for the purposes of transferring corporate earnings to his children upon death

After conversations with Bill I discovered passing down a larger estate to his children was not one of his goals.

Upon further discussions I discovered his greatest concern moving forward was selling his company and ensuring that he had enough income during retirement, and it was being accessed in the most tax efficient way.

The obvious solution to this was using a back-end leverage strategy with an 8 pay whole life option as opposed to 20.

It didn’t make sense that he should continue to pay insurance until he was 80 instead of 68.

We illustrated the back-end leverage strategy and discovered that not only could Bill have more retirement income from age 70-90 but would also have a $700,000 benefit to leave behind after death which would help with taxes and other estate planning goals he had.


This was a perfect example of working with a client who already had multiple advisors and professionals that simply weren’t communicating with each other.

As you can see now there is multiple problems that arise when different disciplines don’t communicate with each other or with the client effectively!

I will encourage you to schedule a free 30-minute strategy session with me.

What this session will highlight is:

  1. If you have unforeseen liabilities threatening your future
  2. How you can be more efficient with your finances and save on taxes
  3. How you can receive maximum after-tax value from your company if/when you sell
  4. How you can pass down your business to your family without sacrificing your goals
  5. If your planning has something missing from it

So please schedule a session and I look forward to exploring how we can help you.

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