Writing an estate plan is important if you own personal assets but it is even more crucial if you own a business. This is because additional business complexities 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 the following seven key questions; if you answer “no” to any of them, it may highlight an area that requires you to take remedial action.
Have you made a contingency plan for your business, in the event that you become incapacitated or die unexpectedly?
Have you, and any co-owners of your business, entered into 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, 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 ($848,252 in 2018) 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?
The process of freezing the value of your business at a particular date is an increasingly common way of protecting your estate from incurring large capital gains taxes. To achieve this, the shares in the business that have the highest growth potential are usually redistributed to others - often your children. This means that your children will be liable for the taxes on any increase in their share value in the future. In exchange, you will receive new shares allowing you to maintain control of the business, with one key difference – the value of the shares is frozen so that your tax liability is lower and as a result, your estate will incur less taxes.