Securing your legacy

COMPREHENSIVE ESTATE AND SUCCESSION PLANNING

By Jacqui Teske

JACQUI TESKE is a senior manager in MNP's Audit and Assurance group, serving the southwestern Ontario region. A chartered professional accountant with over a decade of experience in public accounting, Teske’s experience spans multiple sectors, including: landscape construction, manufacturing, transportation, finance and tourism. Her expertise helps clients identify opportunities for growth and operational efficiencies, minimize risks and navigate complex challenges, such as transition management and succession planning.  

 

Teske shares the following considerations to help small business owners prepare for the eventual transition of their company’s management and ownership to maintain continuity and reduce stress for families and employees.

Are you ready?

Death is a topic many people are uncomfortable thinking or talking about. However, the certainty of this event makes it important for individuals to plan ahead.

Business owners must also consider succession planning as part of their overall estate plan. Proactive succession planning is critical to help ensure the continuity of the business and at the same time manage family dynamics if the business owner passes away unexpectedly.

Dealing with grief from the loss of a loved one is challenging enough without having to navigate the tax, legal and administrative aspects of an estate. Having a proper estate plan to prepare for your eventual passing can provide some much-needed relief to your family during a difficult time.

Estate planning is not just making sure there is a will in place. It is a process with four key elements:
1. Business planning
2. Legal planning
3. Tax planning
4. Risk planning

Let’s look at considerations under each of these elements to keep in mind when undertaking estate planning.
 

Business planning

It is important to ensure your business structure supports continuity in your absence. Without proper planning, your business may face operational challenges and disruptions. Consider who will be responsible for running the business if you are no longer able to, and ensure these individuals are prepared and capable. This includes having detailed succession plans and training programs in place for key roles within your organization.
 

Legal planning

You must consider both your personal and business assets when drafting your will. Depending on your province of residency, it may make sense to separate your assets into multiple wills, as this may help reduce probate fees on your passing. Additionally, consider who will have the authority to make personal and business decisions for you if you become incapacitated or pass away. You and your business advisor(s) should always consult with a lawyer to make sure your wishes are documented accurately.
 

Tax planning

If your business is incorporated, continuous monitoring should be undertaken to make sure the shares meet the definition of Qualified Small Business Corporation (QSBC) shares, which allows access to the Lifetime Capital Gains Exemption (LCGE). The LCGE can shelter up to $1.25 million¹ of eligible capital gains from income tax on an eventual sale — whether planned or unplanned. There are various eligibility requirements, so it’s important to plan and monitor the corporation’s eligibility as a QSBC.

Business owners can also consider an estate freeze during their lifetime to start the process of transitioning the business to the next generation. This is a great option for those who want to start the transition but want to retain control of the business.

Other tax planning solutions are available during your lifetime or after death to help ensure your estate is not subject to excessive income taxes upon death.
 

Risk planning

Life insurance should be considered in your broader estate plan. For business owners, having the appropriate level of insurance in place will not only help pay off income taxes that arise upon death, but will also help fund business continuity in the event of an unexpected death.

Proper estate planning carries many benefits, including safeguarding assets during your lifetime, ensuring the smooth transfer to beneficiaries, minimizing income taxes on death and supporting business continuity — all while preserving family harmony. There are many considerations in estate and succession planning and it is best to consult with an advisor as early as possible to start your planning process.
 

¹ As announced by the federal government for capital gains realized after June 24, 2024. Note this amount has not been enacted into law at the time this article was written. The currently enacted LCGE for 2024 is $1.016 million.