Why disconnect between tax and wealth advisors is so costly

The biggest mistake investors can make when it comes to wealth transfer is not connecting their tax advisor with their investment counterpart.

That’s the view of Justin Mastrangelo, partner, Transaction Tax, BDO, who will share his thoughts and expertise on the subject at the WP Innovation and Strategy Summit on May 29 in Toronto.

He will take part in a panel entitled Succession and Estate Planning: Preserving Wealth for the Next Generation, which will look at why 70% of wealth transfers are unsuccessful because of familial issues.

Mastrangelo believes a lot of people wait too long to address their succession plans and, ultimately, pay the price.

He told WP: “I see a lot of people wait too long. They are afraid of the topic and the concept of succession, and they are afraid to talk about what is going to happen to their assets when they pass away. They put it off and then, all of a sudden, an exit event happens and it’s just too late at that stage of the game to have that discussion.”

Given the changes in the tax landscape and the onset of the “tech age”, Mastrangelo said there is too much distance between the tax and investment advisor. He believes they should be talking once a quarter.

“Should [the client] be investing in a private corporation or should they be investing personally? How does that affect their business operation? With that disconnect, it puts the client at risk and puts you at risk of losing that client. Somebody else is going to come along and say you are missing something.

“It’s such a competitive landscape these days that a lot of it is just communicating with clients.”

A family business owner who has built up a lot of wealth but failed to prepare their estate ends up with a large tax bill. Mastrangelo is, therefore, a fan of the commonly used family trust and said it has a number of crucial benefits. It can reduce or eliminate your tax on death and be used to enable a tax-deferred transition to the next generation.

He added: “More importantly on a future exit, we find business owners with a lot of wealth unsure of selling or transitioning this to their children. The trust gives you that flexibility, so if you end up selling your business you can multiply your capital gains exemption through the trust. Maybe you want to sell it like a divestiture as opposed to an actual transition to your family.

“So a family trust is a big way of limiting estate tax, repositioning your wealth for the next generation and setting you up for a very flexible succession plan.”

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