Bill's 55 and owner of a successful law firm in Southwestern Ontario. His wife Jan works with him and they have 3 children with one starting law school, one not sure what they want to do and the other in high school. The oldest John is married and they just had their first child. Three other lawyers work at the firm and one has worked with Bill for 6 years and is considered a key employee. Bill and Jan want to retire at 65, possibly have John come work at the firm and want to steal time to play with grandchildren at the beach.
Laura, Bill's adviser, suggests it's time to put together a succession plan, giving an opportunity for John to take over the firm, have key employee/lawyer Harry (concerned of his own working future) remain and take on a greater role but doesn't know what to do.
After Q & A sessions with Bill, Jan and Harry separately, Laura comes up with main parameters to build a plan:
- 10 years is the time line needed to know if John is even interested in taking over the law practice.
- Harry is quite competent in running the firm if something happens to Bill.
- Jan cannot run the firm and would have to count on Harry.
- There has to be a reason for Harry to want to stay at the firm.
Laura comes up with the following:
1. Split dollar critical illness plan including a Return of Premium feature which in 10 years would payout $100,000 to Harry tax free but he has to stay the ten years to get and in the mean time if something happened (heart, stroke,cancer etc.) to Harry $250,000 is paid to the Professional Corporation to head hunt for a possible replacement.
2. Key person term life insurance of $250,000 for Bill and Harry is to be used for the firm so Harry can find legal talent to replace Bill and visa versa for the other.
3. As Harry has no disability insurance a Wage Loss plan is to be put in place that protects Harry and Bill for $15,000 per month each and the benefit is taxable but all paid by the firm and tax deductible to the firm.
No plan is perfect but the plan should keep Harry at the firm, give Jan a chance to carry things on if something happens to Bill and gives them 10 years to build things up for the possibility of John or one of the other children to come into the fold with the intention to take things over or work in partnership with Harry.
Now Bill can focus on more important family things like playing on the beach with grandchildren.