Keeping the business in the family: Succession strategies for a smooth generational wealth transfer

As a boy growing up in Bradford, Ont., Dan Sopuch enjoyed working alongside his late father, Paul, on the family farm. When it came time to choose a career path, Dan was eager to join the family business and take on the challenges of farming.

“There’s a solution to getting a great crop, and it’s not the same every year; It’s like a maze, and every year there’s a different path,” says Dan, who now manages Marshland Gardens, the 200-acre carrot, onion and celery farm founded by his dad.

In the years before Paul passed, the father and son duo connected with their local CIBC Imperial Service financial advisor to develop a plan for protecting their investments while keeping the farm in the Sopuch family for generations to come.

“When I first met Paul, he was very focused on ensuring the financial health of both the farm and his family for the long term,” says the family’s financial advisor, Nicholas Vecchiarelli. “We talked through things like beneficiary arrangements, ownership transitions, liquidity planning and the overall financial positioning of the family’s business.”

Those conversations resulted in an investment and succession plan designed to protect Paul’s life’s work and get it ready to hand off to the next generation, while securing the farm’s long-term financial sustainability.

After Paul’s passing, Mr. Vecchiarelli engaged internal partners within CIBC who worked with the family’s legal and tax advisors to ensure a smooth transition of his assets.

“We also discussed options for reinvestment, tax efficiency and long-term planning to build equity and preserve the legacy of the farm and Paul’s estate,” he says. “Much of this involved educating and talking to Dan as well as Dan’s son, Chris, ensuring they had access to the tools and advice that they would need moving forward.”

The Sopuch family’s experience is an example how robust business succession planning, the guidance of a trusted advisor and some smart generational wealth transfer strategies can ensure a smooth transition and peace of mind.

Start succession discussions early

Business succession can be a difficult subject, especially when conversations about the transfer of wealth and responsibilities are between family members. That is why many family businesses turn to a trusted advisor who can act as a non-biased expert who can facilitate and guide the conversation and help chart a path forward.

“If you’re a business owner, the most important thing is to have a discussion in advance, whether that’s with your family, your employees, your management team, or anyone that’s interested in taking over,” says Jamie Golombek, managing director of tax and estate planning at CIBC.

Mr. Golombek adds that some forward-thinking business owners begin their succession planning from day one, but most start to have those conversations about a decade before they intend to retire.

“Don’t leave it to the last minute, and if you’re not familiar with how things work, bring in an expert facilitator.”

A trusted advisor can guide business owners through the process of sharing their plan with family members, providing a structure for conversations that can be complicated by family dynamics. Like Mr. Vecchiarelli, who has worked with three generations of the Sopuch family, an advisor can help educate younger family members so they feel confident about their future roles in the business.

An advisor can also assist business owners as they navigate the sometimes-challenging task of deciding who will inherit what, says Mr. Vecchiarelli. For example, it can be a challenge to figure out how to handle wealth transfer when one child is involved in the business while the other is not. How can you ensure each child is treated fairly when it comes to wealth transfer?

While Dan Sopuch isn’t thinking about retirement any time soon, he says he knows that balance will be something to consider in future when deciding how to divide his estate between his two sons. His eldest son, Chris, “always knew” he wanted to be a farmer and will inherit Marshland Gardens someday, while Dan’s younger son, Nicholas, has successfully pursued a different career path in the tech industry in London, UK.

Dan says that his father Paul didn’t discuss estate matters with him until his late 80s, but he has learned from that situation and plans to have the conversation with his children earlier in life.

Mr. Vecchiarelli says his broader advice for individuals facing these sorts of issues is to be as transparent as possible. Having discussions early on, with the help of a trusted advisor, can enable younger family members to express their own interests around the business and ensure everyone is on the same page.

Consider new opportunities and succession options

While foresight is key, plans also need to remain flexible enough to pivot and evolve with changing circumstances, tax rules and market conditions.

As an example Mr. Golombek notes that the federal government recently increased the amount of the lifetime capital gains exemption to $1.25-million and introduced the new Canadian Entrepreneurs’ Incentive (CEI) program, with potentially significant implications for businesses when it comes to their succession planning.

The CEI lowers the tax rate on capital gains that eligible business owners pay when they sell their company. In addition, the program has been opened to entrepreneurs selling agriculture and fishing properties, which had originally been excluded.

Mr. Golombek points to another potential succession planning option: employee ownership trusts (EOTs), which allow an owner to transfer the business to the employees in a tax-effective manner.

“If you sell the business to your employees via an EOT, the first $10-million of capital gains is completely tax free,” he says. “That’s a huge incentive.”

Don’t go at it alone

The Canadian Federation of Independent Businesses (CFIB) reported in 2023 that over three-quarters of Canada’s business owners plan to exit their companies within the next decade, meaning that over $2-trillion worth of assets could change hands during that time.

With so much at stake, Mr. Golombek reiterates the need for business owners to plan early and get expert advice from an advisor who has the knowledge and experience to ensure all options are considered and tax savings are optimized.

“They’ve done it before, they’ve seen what works and what doesn’t, they’ve worked with a variety of different families in a variety of different industries,” says Mr. Golombek. “So why do this alone when there are people that can help you, add significant value and take away the stress?”

Are you thinking about your own business succession or wealth transfer plan? Get in touch with a CIBC advisor today

Advertising feature produced by Globe Content Studio with CIBC. The Globe’s editorial department was not involved.