estate planning for the business owner

Estate Planning for the Business Owner

Presented by: Doris Bonora and Cheryl Gibson18 April 2013

Planning for Sickness or Incapacity

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• Questions for Business Owners: If you have a stroke tomorrow does someone:• Have a key to open the business?• Know the passwords for the computer?• Have authority to write cheques?• Know the accounts receivables or what contracts are on-going, what inventory

is ordered?

Planning for Sickness or Incapacity

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• Important to plan for such an event to preserve the business and the value of the business

• Important to do some planning to preserve what for many business owners is their most valuable asset

Planning for Sickness or Incapacity

• Enduring Power of Attorney• Deal with financial affairs• Important to choose business manager to be attorney: must be someone

who can manage the business or who will find someone to manage the business

• No assumption that spouse or child will have power• Gives access to information• Be specific• Name an alternate• Have a dispute resolution mechanism such as an arbitration clause

Enduring Power of Attorney

• If there are agreements in place to sell the business or give it to a child this should be reflected in the Power of Attorney. Direct Attorney to review the will for any instructions.

Personal Directive

• Deals with all non-financial matters• health care• living accommodations• social activities• employment activities

Personal Directive

• Appoint an Agent – health care advocate• spouse• children• trusted friend

• Donation of organs

• Medical intervention if in vegetative state

• Stay at home as long as possible

If no EPA or PD was prepared

• Adult Guardianship and Trusteeship Act

• Appointment of trustee and guardian• increased costs for legal and medical report ($500-$700 for medical report and

$750-$1500 for legal fees)• trustee to file accounts with the Court• all family notified… public guardian to interview person• report of decisions filed

Business Tax and Estate Planning

• Structure of the business• Corporations• Trusts• Partnerships• Joint Ventures• Proprietorships• Partnerships

Business Tax and Estate Planning

• Unanimous Shareholder Agreement• Contract among shareholders even future shareholders• Restrict transfers• Protections for shareholders• Facilitate Business Succession• Buy/Sells to solve disputes, exit strategy, death planning or get rid of

troublesome shareholders

Business Tax and Estate Planning

• The Role of Insurance• Fund the Buy/Sell• Fund the Tax Payable• Key Man Insurance

Business Tax and Estate Planning

• Tax• Deemed Disposition on death• Insurance is received tax free• Capital Dividends

Business Tax and Estate Planning

• Estate Freezes• Allows Business owners to freeze the value of the business and pass the

growth on to children • Business owner can maintain control (some or all)• Can make use of a Trust

Business Tax and Estate Planning

• Estate Freezes using Trust:• Trusts can provide tax advantages• Trusts can act as a will substitute – avoid probate and challenges to will• The estate freeze must be done with accountant for valuations and with

lawyer for documentation

Business Tax and Estate Planning

• With Trusts future income splitting can be done among family members

• Trust can produce multiple capital gains exemptions

• Trust can protect investment from creditors

Will

• Must be done before incapacity

• Sets out who is in charge and what is the plan

• Keep family out of court

• Name Executor/Trustee• trustworthy• at least one executor who knows how to run a business

Will

• Make specific decisions about business

• Don’t leave all the decisions up to the executor and the beneficiaries

• Consider trusts for tax reasons or for dealing with problems such and disabled children or addictions

• Set deadlines on when the business will be sold or transferred

• Distribute personal items (jewellery, china etc.). Have a set of directions…choose in birth order, have a sale, have a list of items and who will receive the items

Joint Assets

• Loss of control

• Loss of tax exemption

• Subject to creditors of joint owner

• Confusion in respect of ownership

Assets Passing Outside the Will

• Life Insurance

• Pensions

• RRSP and RRIF

• Tax Free Savings Account

Estate and Tax Planning

• Deemed Disposition on death.. sell everything the minute before you die

• Rollovers for spouses

• Capital Gains Exemptions for Business owners and farm owners

• Death benefits payable by corporation

Tax Returns

• Return for year of death

• Return for income in the estate

• Rights and things return

• Trust returns

• Clearance certificates

• Voluntary disclosure

Questions?

Doris Bonora780 423 7188doris.bonora@dentons.com

Cheryl Gibson780 423 7310cheryl.gibson@dentons.com

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The preceding presentation contains examples of the kinds of issues businesses dealing with Estate Planning could face. If you are faced with one of these issues, please retain professional assistance as each situation is unique.

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