Estate planning tips for business owners

Estate planning is often complicated, especially when a family-owned business is involved. Whether you are on the giving or receiving end, passing ownership of something that holds both an emotional and monetary value is a daunting task. Fortunately, there are Chartered Accountants, like Steven Hacker, CA∙CBV, who can provide the kind of expertise necessary to make the process easier.

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As a chartered business valuator with Meyers Norris Penny LLP in Toronto, Hacker’s job is to size up businesses, assess their worth and advise their owners about continuity issues. Here, he provides tips and considerations for business owners to help ensure that those who inherit the businesses receive all that they are entitled to when the time comes. 1. Be clear about your objectives. As you think through your estate plan and succession plans for your business, keep the needs of your beneficiaries in mind. Do you intend that they will continue operating the company? Or do you plan to liquidate it, get the best price you can, minimize taxes and leave an estate for your heirs? 2. Consider the ages, capabilities and wishes of family members to whom you plan to leave the business. What do they want to do? Don’t overlook the needs and wishes of key employees who now work for you, either. If they’re vital to the continuity of the business’s operation, you will want to make sure they have incentives to stay, and possibly invest. Hacker says that it’s important to flesh out these issues now. Don’t wait until you’re forced to make decisions because you’re ill and dealing with stress, duress or other less-than-ideal circumstances. 3. Carefully choose and consult experts about tax minimization. For income tax purposes, when a business owner dies, there is typically a deemed disposition of personally held assets, such as shares in the business. If the proper measures are not in place, large capital gains may be triggered, resulting in a significant tax liability to the estate. It’s important that this be addressed in advance to minimize the tax and potential interruptions to the business’s operations. You’ll need a lawyer to handle wills, transfer agreements, powers of attorney, and other personal and corporate legal documentation necessary to effect your plans. A Chartered Accountant is indispensable as regards income and operational accounting, corporate structure and taxation issues. And by all means, involve a business valuator for a bona fide assessment to determine what your business is worth to you and your heirs. 4. Ask your CA about the concept of an “estate freeze.” This establishes a set point at which all subsequent growth goes to the next generation. It effectively locks in the tax liability on death, based on today’s business value. An estate freeze can transfer the growth of the business to a spouse, children or a trust, and allow you to lock in the taxes on deemed disposition at today’s value. 5. Consider buying insurance to offset any taxes that must be paid when business owners die. Insurance can also help to manage the buyout of a deceased business partner. In this case, a proper shareholders agreement is key to making sure what is intended actually takes place when one of the shareholders dies. 6. Estate planning involves family plans. Don’t overlook the stipulations imposed by prenuptial agreements, marriage contracts or other relevant constraints. 7. Keep your CA advised. Throughout the planning and disposition of your business and estate, a trusted adviser who is intricately familiar with your affairs will be able to handle the details, smooth the transition and help keep your heirs and loved ones in the best possible financial shape.