Jared Pilon
The last aspect of the "Planning Process' addresses your estate and easing the process for your business and family.
Focus
Ensure business continuance and put a plan in place to preserve your legacy.
Determine who will take over your business
Can you transfer your business to a family member, an employee or third party?
Planning to transfer your business to a new owner should never be the last step in your estate plan; it should be the first. If your business can be transferred to a new owner, you should consistently work towards that goal. If you do not have children or none who are interested in taking over, you should be preparing a key employee to step into ownership in the future. Your business should always be in a ‘saleable state’ as you never know when a third party might send an offer.
Timeline for transfer
When do you expect to exit the business?
Much like planning for retirement, this can be difficult to answer. A comprehensive approach should be taken that examines both your business and personal goals, and then pursues a plan that encompasses these goals. If you are transferring the business to a child or a key employee, you may need to stay and assist with the transition. If you are selling to a third party, they may request that you help with the transition by working for the company as a contractor.
How long are you willing to fund the purchase price?
Depending on how your business is transferred, you may need to fund the purchase price, specifically if you are transferring to a child or key employee. There is some inherent risk taken on as the exiting owner when you transfer the business. You are anticipating that the business will continue to be successful after you have given up control, and will be able to fund your retirement via the purchase price. Properly structured agreements can provide some protection to the exiting owner, but they do not completely reduce the risk.
The purchase price
Will you be executing an estate freeze?
It can be difficult for new owners to pay the full purchase price upfront. One method to ease this
burden is through the execution of an estate freeze. Simply put, this type of planning moves the value the exiting owner holds in the business from their common shares to redeemable, retractable preferred shares. This allows new owners to buy into the business at a nominal value. An agreement would be put into place that would dictate the terms of the redemption of the preferred shares, thus funding the exiting owner’s retirement.
Does the purchaser have access to immediate funds?
If the purchaser has access to funds to close the sale immediately, this will reduce a significant amount of risk to the exiting owner. If this is not the case, the exiting owner must be prepared to wait for some time to receive the purchase price. It is more important to determine the validity of the potential buyer’s offer when the purchase price will be received over time. Is the new owner qualified to take on the responsibilities of business ownership? Will they be able to keep the business profitable over the course of the payment period so the purchase price can be paid? Always ensure that you do your due diligence and put the proper protections in place to preserve your legacy.
Division of assets upon passing
Do you have a will in place?
Regardless of what stage in life you are currently at, it is vitally important to have a will in place. This will protect your assets and your legacy upon passing. Your will should be drafted by a lawyer and should be reviewed regularly, and whenever a major life event occurs, such as a change in marital status or the birth of a child. Without a will, your business and other assets will be subject to the applicable estate laws within your province. The distribution of your assets may not be completed in accordance with your wishes, will not be done in a timely manner and can result in significant hardship for your family.
Are there charities that you would like to support?
When considering your legacy, there is no better place to start than reflecting on the charities you have supported throughout your life. You can consider several options in estate planning to provide ongoing charitable support (via a trust) or through a one-time gift upon passing. Discussions should be made with your accountant and lawyer to determine the most efficient means to support a charity of your choice.
Is tax mitigation important?
In the process of planning your estate, tax mitigation is a significant aspect to consider. As with anything in life, there are tradeoffs. Additional tax mitigation planning results in higher professional fees associated with implementing the plan. It is important to consider your needs and your family's needs when deciding on tax planning strategies. A good tax mitigation plan is not a good plan if its costs outweigh the benefits that you receive. A good estate plan considers all your potential concerns (tax and otherwise) and implements a flexible solution that benefits your family as a whole.
Your next steps
Want to take the next step in the 'Planning Process'? Click the preceding link to download a free copy of the complete 'Planning Process' eBook.
You can ensure your business and your family are taken care of when your estate is properly prepared. Contact us at , and our accounting and tax experts can help you navigate preparing your estate.
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Posted: 11/19/24
