Estate Planning for Business Owners

Writing an estate plan is important if you own personal assets but is all the more crucial if you also own your own business. This is due to the additional business complexities that need to be addressed, including tax issues, business succession and how to handle bigger and more complex estates. Seeking professional help from an accountant, lawyer or financial advisor is an effective way of dealing with such complexities. As a starting point, ask yourself these seven key questions and, if you answer “no” to any of them, it may highlight an area that you need to take remedial action towards.  

  • Have you made a contingency plan for what will happen to your business if you are incapacitated or die unexpectedly?
  • Have you and any co-owners of your business made a buy-sell agreement?
  • If so, is the buy-sell agreement funded by life insurance?
  • If you have decided that a family member will inherit your business when you die, have you provided other family members with assets of an equal value?
  • Have you appointed a successor to your business?
  • Are you making the most of the lifetime capital gains exemption ($835,714 in 2017) on your shares of the business, if you are a qualified small business?
  • Are you taking care to minimize any possible tax liability that may be payable by your estate in the event of your death?

Estate freezes 

The process of freezing the value of your business at a particular date is an increasingly common way of protecting your estate from a large capital gains tax bill if your business increases in value. To achieve this, usually the shares in the business that have the highest growth potential are redistributed to others, often your children, meaning that they will be liable for the tax on any increase in their value in the future. In exchange, you will receive new shares allowing you to maintain control of the business with a key difference – the value of the shares is frozen so that your tax liability is lower and that of your estate when you die will also be reduced. 

How to Protect Your Wealth

In today’s uncertain and sometimes volatile financial world, the importance of putting tangible steps in place not only to protect, but to maximize your investments and wealth has never been more crucial. Without the gift of a crystal ball, we are unable to confidently predict the precise landscape of the financial outlook a year in advance, let alone decades ahead. This is where the importance of forward and contingency financial planning comes in. Let’s explore some of the key areas in this field:

Planning for Your Financial Future

Risk management is a term given to the strategies to help to protect your capital from unexpected events which can have a critical effect on your finances, such as unemployment, disability or critical illness. 

In case of unemployment, you should have an emergency fund (usually about 3 months of income). The benefits of disability insurance policies are that in case of disability and you can not work, the insurance will provide you with a portion of your salary. 

In case of critical illness, you can use the benefit to maintain financial stability and recover without financial worries. 

Considering Segregated Funds?

Dabbling in equities markets can sometimes feel daunting and many people worry about the risks of investing their capital in the market over which they have no direct control. If this is something that concerns you too, segregated funds could provide you with a good compromise. They have similarities to mutual funds in that that they allow you to benefit from the financial growth of your portfolio of securities, but offer you more protection by the means of a maturity guarantee and a death benefit guarantee, further securing your investment.

We end this article with a nod to the crucial area of estate planning. Essentially, this involves ensuring that you create and maintain an up to date and legally binding Will, as well as choosing your executor, beneficiaries, trustees and also naming a legal guardian for your children, if you have any. This will help to ensure that your financial wishes are carried out correctly and effectively, minimizing upset and disruption at a difficult time.

By taking the time to think carefully about your current financial position and the priorities that you have for your and your family’s future, you can take advantage of some of the strategies, products and services out there to provide extra security for your financial future and added peace of mind for yourself and your family.