“Most people don’t plan to fail, they fail to plan” [John L. Beckley].

I once heard a story which I have not verified myself however, it reminded me of similar story’s that we hear from time to time happening with families of people who failed to do proper estate planning or who did the proper planning but failed to implement the plan with the proper funding for it.

The story happened in the province of Ontario with a successful accountant who built a nice accounting firm over his 35 year career with many assistant accountants working for him.

The accountant died suddenly from a massive heart attack at age 62 and left behind a widow and 4 grown up children.

Before he died his firm had a market value of $8,000,000. The firm also owned the building in which it was operating, the value of that building was another $6,000,000. The building though had a mortgage of $4,000,000.

The value of the business and its property before paying off the mortgage was $14,000,000 and the net market value of the business for tax purposes was $10,000,000.

The capital gain taxes owed to the government was around $2,500,000 because the Canadian tax law is that the capital gain tax owed by an estate to the government is calculated based on the market value of the business ON THE DAY BEFORE DEATH.

The accountant unfortunately like many accountants “did not believe in buying permanent life insurance” so he bought at age 40 only a Term 20 life insurance policy, at age 60 when it came to renew for another 20 years he felt that it is not worth to renew because if he lives until life expectancy which is around age 86, the policy will not be there anyway to cover his estate capital gains tax so he did not renew the policy, and to buy a whole life was too expensive for him.

The family had to sell the business and the building at a discounted price for 2 reasons, 1. The market value of the business that just lost its CEO was much less worth of what it was worth a day before he died with him being at the helm of the business. 2. Selling the business and property with a timetable pressure made it a fire sale and buyers know this.

The family sold the business and the building for a total of $9,000,000.
The bank received their $4,000,000 to pay off the mortgage.
The Government received $2,500,000 to pay the capital gain tax.
The real estate brokers commissions, the lawyers and accountants fees were around $500,000.

The family was left with only around $2,000,000 out of a business and property that had a solid total value of $10,000,000 and a potential value of $14,000,000.

A whole life policy at age 60 would of cost the company around $120,000 a year for 13 years which is much less then the $8,000,000 the family lost.   The premium could of also been financed by the bank with almost no cash flow cost to the company.