My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Wednesday, June 11, 2014

Are Estate Freezes the Wrong Solution for Family Business Succession? - Part 2 and Giveaway

On Monday I discussed why an estate freeze may not be the right solution for a family’s business succession plan and why Tom Deans considers an estate freeze to generally be the absolute wrong way to go about transferring a family business.

Today, I discuss my interpretation of Tom’s thoughts based on a panel discussion I participated in with him, my reading of his book and a review of interviews he has given. To be absolutely clear, these are my interpretations and Tom has not reviewed or commented in any way. Finally, I have a 4 CD audio set giveaway of Tom's book Every Family's Business.

Buy the Business, Are You Kidding Me?

In the postscript to Tom’s book Every Family's Business: 12 Common Sense Questions to Protect Your Wealth, he says the one part of his presentation that always elicits an uneasy response is when he says ‘in this room there are children who believe their parents will gift their business to them and parents who believe their children will purchase their business”. He goes on to say “this lack of clarity over the future ownership of the business is the greatest source of conflict and wealth destruction in a business".

What Tom is poignantly noting is the lack of communication between parents and their children and the unspoken assumptions that are often far from the truth. A parent needs to be honest with their child(ren) if their expectation is that their child(ren) will have to purchase the family business. Children need to be honest with their parent(s) about whether or not they are willing to purchase shares in the business or if they even have an interest in carrying on the business. The best business families are able to talk openly, honestly and frankly about money, business and family succession.

Just Sell the Damn Thing

Tom says “The legacy is not the business. The legacy is the family”. Many business owners believe their greatest legacy is their company and their job as entrepreneurs is to transition that business into their children’s hands. Tom suggests that owners need to grant themselves permission to take care of themselves first by selling for cash and looking at their business as an instrument of wealth creation. Although the business will typically be sold to competitors, Tom has no problem offering the business to children, as long as they purchase it on commercial terms and take on the risk of ownership (children may get preferential payment terms).

Tom says that when children find out they will not be gifted the business (through an estate freeze) they are often perturbed, however, when it is explained to them that someone is paying mom or dad millions of dollars, some of which may be allocated to them immediately or will ensure a significant inheritance for them in the future, they suddenly change their tune. Essentially, Tom is saying that the equity in your business does not have to be passed down as shares in the business, but can be passed as liquid wealth to your children down the road. To deal with the liquid wealth created by a sale, Tom wrote a second book entitled Willing Wisdom: 7 Questions to Ask Before You Die.

Transitioning Your Business to Your 65 Year Old Child

If a parent decides against selling the business and undertakes an estate freeze, often the parent becomes their own worst enemy. Tom half-jokingly noted during our panel discussion that when your parent has a heart attack at 71, twenty years ago they died. Now doctors put in a coronary stent and your parent is good for another 20 years. So when parents tell a child it will all be yours one day, that one day could be when you turn 65 and up until you obtain control of the company, your parent(s) may keep their thumb(s) on you (since they often maintain voting control as per my estate freeze discussion last week). Parents; skipping a generation is not succession planning! 

Find the End Before it Finds You

Tom says that in many cases your succession plan as an owner is no plan and until you suffer a health event, there is no urgency to plan. He suggests that it is important to start planning from day one, while you are healthy and clear of mind. Determine if there is a buyer in the house (family member) and as noted above, do not assume your children will be the buyer. He feels that if your children will not put up their own money (or obtain their own bank financing) to buy some or all of your shares, you should look elsewhere. If a child is not willing to risk their own capital, Tom feels that means they are either not committed to the business or they truly feel the business is old and past its freshness date.

Whether you want your business to be enticing to your children or an arms-length buyer, you must ensure your business adapts to changes and risks in the market place and that you continuously strive to improve operations and efficiency. By doing such, you make your company more valuable to an outside party and more attractive for a child to risk their own capital and carry on the business.

If you own a business, I strongly suggest you buy Tom’s book. In the end, he boils family succession planning down to 12 commons sense questions that start the family succession conversation but also cleverly have the ability to end the conversation quickly. I hope the two posts this week and last week’s blog on estate freezes, has given you plenty of food for thought.

Every Family's Business 4 CD Set Giveaway

I have two copies of a 4 CD audio set of Every Family's Business narrated by Tom. If you would like a copy, email and I will randomly select the two winners and announce them on June 16th.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. Please note the blog post is time sensitive and subject to changes in legislation or law.


  1. Estate freezes can come back to bite you. See Kachur vs. Kachur, where an ex wife challenges the trust, and virtually wipes out the fund with court costs.

    1. As my article points out an Estate Freeze is not for everyone and you provide another reason, although not necessarily typical