For family business owners in North Bay, it's difficult to imagine no longer being at the helm of the business you've worked so hard to build and grow. Because of this, many are not prepared for the unexpected, nor are they aware of what it would mean for their business. That’s why it is important to plan ahead.
Developing an estate plan with the future of your business in mind provides protection and financial security for your business and family members in case of your incapacity or death. Without a well-drafted plan, your wishes may go unfulfilled, your business may falter, and what you intend to leave to loved ones may be diminished. While proper planning is vital for all businesses, it's especially prudent for family-owned businesses that may be passed down to the next generation.
The following considerations can help you start to think about estate planning in relation to your business.
A will is only one tool in the estate planning toolbox
While drafting a will is a fundamental step in estate planning, it's only one tool among many. In many cases, to fully implement your wishes for the future of the business, or to utilize available tax efficiencies, your estate plan will include many other components beyond just a will.
- Powers of attorney can be business and personal
A power of attorney is a document which appoints an individual to make legal and financial decisions and to manage your finances in your place. Many business owners appoint two powers of attorney for financial matters: one to deal with business issues and another to deal with personal issues.
- Planning for tax efficiencies can help maximize the value of your estate
With proper estate planning, you can maximize the legacy left to your beneficiaries. For example, a multiple-will strategy may help reduce the amount of probate fees your estate will have to pay when you pass away. Another example is post-mortem tax planning, which can help reduce taxes in connection with shares in a private corporation.
- Life insurance may ease financial burdens on the business
A business-owned life insurance policy is designed to help the business continue in the event the owner or partner dies. For instance, there may be insufficient funds in the deceased's estate to pay the tax owing in connection with the shares held by the deceased upon death. This can place a financial burden on the business. Or it could force the executor to turn to personal assets to satisfy the debt, which may be inconsistent with the deceased's intentions. In those instances, life insurance can help protect the business, see that the intentions of the deceased are honoured and provide potential tax advantages.
- A shareholders' agreement and family contracts should not be overlooked
When a business owner is not the sole shareholder of a business, a shareholders' agreement is an important part of an estate plan. The agreement addresses important business transition issues such as share ownership, the transfer, or sales of shares, what happens on the death of a shareholder, and how to deal with disputes among shareholders. Beyond a shareholders' agreement, family contracts such as prenuptial agreements can help protect your estate and minimize potential issues or claims.
While it's never too late to develop and implement an estate plan, it’s important to plan early and plan often. Let’s start a conversation.
Find out the best ways to protect your estate, family and business. Reach out to KPMG directly or contact one of KPMG's partners directly at the links below.
Dawn Lagesten, Partner, KPMG Enterprise
Shawn Bibeau, Partner, Tax, KPMG Enterprise
Emily Mantle, Partner, KPMG Enterprise