It is April 30th . Kyle and Marybeth Ramsey have approached you for financial planning services with respect to Kyle's company and family estate planning issues. Family Kyle and Marybeth are 52 and 50 years of age, respectively, and they have been married for 29 years. They have two adult children, Audrey (26) and Nora (23). Audrey is married to Jack (32), and they plan to start a family in the next five years. Audrey is just completing her first year of full-time employment teaching kindergarten. She earns a salary of $28,500. Jack has worked for Kyle for the last six years and he was recently promoted to general manager. Nora is a single parent to Todd (4), and she and Todd live with Kyle and Marybeth, who are supporting both of them while Nora goes to university part-time, where she is studying business administration. Nora does not work, but she does receive child support of $600 per month from Todd's father. Employment and Family Business Kyle worked as a floor supervisor in Retox Inc., a major manufacturing plant from the time he finished college at age 23 until he was laid off several years ago. At the time, Kyle was 38 years old. After the layoff, he used $350,000 that he inherited from his father to start Shadow Ltd., a company that designs and builds custom sunshades and awnings for customers throughout North America. Shadow Ltd. currently has a total of 32 employees, including Kyle and his son-in-law, Jack. This year, Kyle expects to draw a salary of $85,000 and dividends of $20,000. The company provides a basic extended health care plan, including group life insurance for all full-time employees; the company does not offer a retirement savings plan. The company has an estimated value of $2.6 million. This year, it is anticipated Shadow Ltd. will have net income from business operations of $620,000 before tax, but Kyle will leave most of this money in the company to finance expansion. The increasing awareness of the negative effects of sun exposure has meant that interest in Shadow's products continues to grow at a healthy pace, and Kyle expects sales to increase steadily, resulting in profit increases of 8% per year over the next ten years. Shadow Ltd. outgrew its original premises, and the company recently acquired and retrofitted a larger industrial property. Last month, full business operations were transferred to the new location, and the old property is up for sale. When Shadow Ltd. first purchased the old property, the land was valued at $120,000 and the building was valued at $140,000. Based on current market appraisals, the land is now worth $210,000 and the building is worth $160,000. The building has an undepreciated capital cost of $84,000. Shadow Ltd. was able to finance the new building with existing resources, so assuming the old building is sold for its appraised value, the company will soon have $370,000 in excess cash. Kyle is concerned about the tax implications of the sale, as well as what the company should do with the money. Marybeth worked for a few years when she first finished college, but as soon as Audrey was born she and Kyle decided that she would stay at home until the children were out of elementary school. She returned to the workforce 12 years ago, and she is currently working as an executive assistant for a job placement agency. She earns a salary of $48,000 per year and she is a member of her employer's group extended health care plan, which also provides coverage for Kyle. Retirement Plans and Assets Kyle would like to start easing into retirement, starting at age 58, and he would like to be fully retired at age 62. Marybeth would like to retire fully at age 60. Kyle is wondering how he can best use the business to finance his retirement. He does not want to sell the business outright because he wants to be able to receive a steady income from it even after retirement. He wants the flexibility of being able to draw on his capital if he needs it during retirement, but he would also like to preserve the business for his children. He would like to get Nora and Audrey or Jack involved in the business so that they could take it over when he retires, but he does not want to hand over control of the business to any of them until he is sure that they are capable of handling it. He also does not want to favor one child over the other, financially. Kyle has made sporadic contributions to a self-directed RRSP over the last 20 years, and he has accumulated RRSP funds of $170,000. He has $80,000 in unused RRSP contribution room. Kyle was also a member of the defined contribution pension plan sponsored by Retox prior to being laid off by the company. At that time, he transferred his accumulated benefits into a locked-in RRSP, which has a current balance of $150,000. Kyle cannot begin receiving payments from that locked-in RRSP until age 65. The plan is governed by the Federal Pension Benefits Standards Act. Marybeth has been maximizing her RRSP contributions ever since she returned to work; she has accumulated $114,000 in a self-directed RRSP. Other Assets and Liabilities The Ramseys own a house valued at $340,000 with an outstanding mortgage of $18,000 and a homeowner's line of credit with an outstanding balance of $12,000. They are registered as joint tenants. They have been aggressively paying down their mortgage the last couple of years and expect to pay off the balance within the next year. This will leave them with surplus cash flow of about $30,000 per year that they can direct towards retirement savings. Other than $5,000 in short-term GICs and Kyle's business interests, they do not currently have any non-registered investment assets. Estate Planning and Insurance Kyle took out a $300,000 10-year renewable term policy with a child-life rider eight years ago. At the same time, he purchased a $100,000 10-year term policy on Marybeth's life. He also has life insurance of two times salary through his company's group life insurance plan. Marybeth does not have any life insurance through her employer and she does not own any policies on her life or on Kyle's life. Kyle and Marybeth updated their wills eight years ago and in those wills they basically leave all assets to the surviving spouse or to the children in equal shares per stirpes in the event of their simultaneous death. Neither of their wills addresses their existing or future grandchildren. Kyle and Marybeth have named each other as the beneficiaries of their RRSPs and insurance policies, with no alternate beneficiaries named. The Ramseys want to update their estate plan to ensure that both Audrey and Nora are treated equitably, and they want to ensure that Todd and any future grandchildren also receive some support. They are also very concerned about minimizing income taxes and probate fees upon death, especially on Shadow Ltd. Miscellaneous Facts and Figures basic personal amount: $13,808 spouse or common-law partner amount: $13,808 base lifetime capital gains exemption for qualified properties: $892,218 a.Marybeth is concerned that the majority of her and her husband's wealth is registered in Kyle's name only. She has asked you privately what her financial rights would be in the event of a divorce or if Kyle should die and bequeath all of his assets to someone other than her. She lives in a province that has a deferred community of property regime. b. Whom could Kyle name as a beneficiary of his RRSP to ensure that the funds would not be taxable on his final return? c. Suppose that Kyle, Marybeth and Audrey were all killed simultaneously in a car accident. Based on their existing estate plan, how would Kyle and Marybeth's estate be distributed? d. If Kyle wants to maximize tax efficiency at retirement, what should be his priority? e. What can Kyle do to minimize probate fees payable upon his death, without incurring a tax liability now? f. Suppose Kyle uses his will to leave his share of the house to Nora, and he changes the beneficiary designation on his self-directed RRSP to Audrey. What are the implications.