Business owners have special needs that must be addressed in estate planning. They may include the following:
Money you owe at the time of your death must be paid. This may include outstanding debts, mortgage payments and bank loans, as well as hidden liabilities such as personal guarantees and accrued income tax on assets that have risen in value.
Without a means of paying these obligations, the business may not continue as a going concern. Your family and your employees rely on the income they receive from your business.
Like many business owners, you may hope to keep the business in your family. Proper estate planning will help to ensure that your business can be transferred to the next generation or sold as a going concern.
Many family businesses are jeopardized by disputes over money and control. Although harmony can't be guaranteed, you can take steps to lessen potential conflicts.
An effective estate plan will smooth the transfer of the business ownership at your retirement or death. A properly drafted buy-sell agreement can provide for the sale of your shares in the business at your retirement, death, if you become disabled or have a disagreement with other shareholders.
Many small business owners add a provision in their will to advise their executor that they have a buy-sell agreement in place, directing them to act promptly to carry out the terms of the agreement.
Effective estate planning also means preparing for a smooth transition of your leadership. If you die suddenly without having made any plans, this transition will likely be more difficult because of the confusion and conflict that may arise during an emotional time.
You can avert potential difficulties by writing down exactly what steps must be taken to maintain the value of your business in the event of your death. An effective estate plan should fully address the unique needs of your business and your family, to avoid problems that could eventually unravel your plan.
This is often one of the main objectives in estate planning for business owners. Income taxes that arise at death may be significant, especially if the business has substantially increased in value.
The Income Tax Act allows certain farm assets and ownership interests in farm operations to be transferred from one generation to the next free of tax, provided certain criteria are met. These rules apply both during the farmer's lifetime and at his or her death.
Capital property, including farming property, can be transferred to a spouse or child without incurring taxes. For the purposes of the Act, a child includes natural and adopted children, grandchildren, great grandchildren, sons-in-law and daughters-in-law.