FOR BUSINESS OWNERS
If you’re a business owner, you may have long dreamed of handing down your business to a family member(s) upon your retirement. However, should you be unable to continue working due to accident or a health issue or pass away unexpectedly, do you have written plans in place detailing who will make important decisions and if need be, will own the shares?
Having a succession plan for retirement is one thing but planning for unforeseen circumstances is another thing entirely and is something every business owner needs to account for. Therefore, succession planning is an important component of your inheritance plan. Particularly if you are a business owner, your estate plan must cover both your personal and your business assets. This plan is significantly more complicated than a personal estate and it is strongly urged that you work with a financial advisor in order to determine the best approach.
Failing to create an effective succession and inheritance plan for your business, or excluding an important component, could mean years of litigation if you were to pass unexpectedly or are suddenly unable to continue working.
A financial advisor can walk you through the process of planning the inheritance of your business to a family member step-by-step and can help you protect your business and your heirs. To give you a brief overview of what is involved with creating your inheritance plan as a business owner, we’ve outlined the following steps to get you started.
1. A Will and a
Basic Inheritance Plan
Business owners, it’s critical to not only have a personal will but also a corporate will in place should you pass away unexpectedly. Without a will, your business assets would be subject to the laws of your Province and may prevent your family, shareholders from continuing to run the business in an efficient manner. The first course of protective action is to get yourself a will that shows your wishes about how your business and any additional related assets will be transferred in such a case.
2. Tax Planning
Have you considered any taxes that may be associated with passing your business on to your named beneficiary or to the new owners? The people who inherit your business many have to deal with any outstanding taxes before the business can be sold.
For many it is their goal to keep the business in the family, however, it is common that not all children want to be a part of the business as they may have established careers of their own. To avoid conflict and potential litigation it is critical that your corporate will directs your wishes clearly. To maintain fair distribution of assets to all children, life insurance proceeds or other assets can be given to these family members but be sure to include the tax considerations of each asset.
4. Multiple Owners
If your business has multiple owners, then you should have a buy-sell agreement drawn up. This agreement will dictate who can buy an owner’s share of the business and at what price. These agreements can be structured in a multitude of ways so be sure to have your lawyer review the agreement if another owner’s lawyer(s) draft it up to ensure it’s fair to all parties
5. Life Insurance
Life insurance will provide your family or the business with a much-needed source of guaranteed cash when you pass. There are many advantages of life insurance own personally and by the business. With special planning corporate owned life insurance can also be used to supplement a business owners retirement income.
6. Discussion Time
During the process of creating your inheritance and succession plans, it is important to involve your family and business partners in the process to avoid any potential conflicts, expenses and time delays in the transfer of your business assets.
Inheritance planning is important for everyone but it’s especially important for business owners. Your company is one of your biggest assets and achievements that you’ve taken a lifetime to build, so you want it to go to the right person and be in capable hands to carry on your legacy. Getting your affairs in order prior to a life-altering event is made easier with the help of someone you can trust. Count on Darryl Smith to give you industry-leading advice and to help you plan for your future for a lifetime. Give him a call when you have a question or require a little direction at 705-434-0562.