As an owner of a business, planning for how you want your personal assets to be dispersed after your death can be challenging. You have to address both your individual and family needs, as well as the needs of your business.
When your family’s assets and income are linked to a business, if you die or become disabled, both estate and succession planning will ensure your family is taken care of and your company remains viable.
What does estate planning mean for business owners?
“Estate planning is a process to plan for the transfer of your personal and business assets when you die while minimizing the taxes your estate or heirs have to pay,” says David Lee, financial advisor at BlueShore Financial. “It’s important to understand that it’s an ongoing process that evolves as your needs and your business change.”
If you die without a will, B.C. law will determine how your assets are dispersed. If you die without estate and succession planning in place, your heirs or estate can be hit with a hefty tax bill.
While each business owner’s circumstances and goals will differ, estate planning is generally designed to:
· ease the strain and provide for family in the event of disability or death;
· reduce the tax liability of the business and the heirs, and preserve the value in the company;
· ensure there’s liquidity to cover business-related costs at death so the business can continue uninterrupted (whether it’s to be sold or kept in the family); and
· plan for succession or transfer or sale of the owner’s share in the company in the event of retirement, disability or death.
Steps in the estate planning process
“There are many steps to effective estate planning,” says Lee, “and whether they all apply to you will depend on your personal circumstances.”
Some of them include:
· ensuring your will is up to date;
· appointing an appropriate executor;
· establishing an enduring power of attorney (EPOA);
· providing an income for your spouse and family in the event of your unexpected disability or death;
· developing a plan for equitable and tax-efficient distribution of your assets;
· creating an emergency business plan;
· writing shareholder/partnership buy-sell agreements if applicable; and
· planning for succession.
To accommodate the above, there are a number of financial strategies at your disposal to help you meet your goals. As a business owner you should investigate:
· potentially establishing a holding company to help manage your assets;
· a spousal trust to help you defer and lower tax and protect your capital;
· investing in life, disability or key person insurance to protect your family; and
· whether an estate freeze is appropriate to help protect against tax on capital gains.
Start planning today
The examples mentioned here are some of the considerations that effective estate planning might include. For business owners it can be an involved process that’s different for everyone – one that’s never too early or late to begin.
Because your plan will depend on your goals, finances and current business situation, you should speak with your financial advisor, business advisor and circle of other professionals. Together, they can create a plan that will protect the value in your business and ensure your heirs are taken care of and your wishes are fulfilled.
