Essential estate planning considerations for the family enterprise

It’s common knowledge that if you want to ensure the financial wellbeing of your family after your death, you need to have a will in place. Nonetheless, many Canadian adults have not yet taken this basic measure to protect the ones they love.

While some simply can’t face discussing their inevitable demise, others are open to the discussion, but believe they have insufficient assets to justify the costs associated with creating a will. What they fail to understand, however, are the costs associated with not having a will.

For example, if you die intestate, the government will automatically divide your property and financial assets according to the wills, estates and succession act, which is detrimental to your interests.

Furthermore, if you are your children’s only remaining parent, upon your death, minor children will be taken into government care, until guardianship is determined – and this can take time.  There is no assurance children will be kept together during this time.

Let’s assume you created a basic will when your children were babies. This is better than no will, but if your children are now young adults or if you’ve created a family enterprise, your current will is not enough. There are likely conflicts created by this will due to uncertainty of decisions needed in the business.

Estate planning for the family enterprise is more complex.

It involves both personal estate planning, succession planning and management transition.

Say, for example, you created your family business shortly after preparing your will. Ten years on, it’s a thriving entity with significant value. Your plan needs to consider not only the division of your personal assets, but also future ownership and management of your business.

Without a succession plan, voting control becomes an issue.

A basic will might automatically pass ownership of your business to your children, but can you count on them to run it? Do your children have different interests, which might force a liquidity event for the business, perhaps after litigation.

Suppose you have four children. Upon your death, a basic will designates equal shares to each of them. Two of your children have been working in the family business for some time and they wish to keep it running in accordance with wishes you verbally expressed. The other two have no interest in maintaining the business and insist a sale to provide their share in cash.

Your children have equal shares in the family business, so they have an equal say in its future. Not only does a 50/50 split in votes mean costly lawyers and stressful court appearances, it poses a threat to your legacy as well as the stability of your family and their relationships. Succession planning helps avoid obvious problems, but no plan is fail safe. To better ensure a successful plan, create transparency, give family members a voice and create governance in the business and the ownership groups. Many problems are avoided when business families engage across generations on succession planning.

There are also taxation risks to consider.

If you don’t plan accordingly, your beneficiaries will end up responsible for your final company tax bill. If you’re like most family enterprise owners, the majority of your wealth is probably tied up in your business, which means there won’t be enough in your personal estate to cover the bill.

This, in turn, could force your beneficiaries have to bring in an investment partner (a decision you’ll obviously have no say in), or sell the business or other assets that are important to keep in the family.

In the interest of your family and your business, plan for the future.

If you do have a will, shareholder agreements and a succession plan, please revisit these regularly.

Succession planning isn’t about letting go of the reins, so don’t let the fear of relinquishing control hold you back. On the contrary, establishing a succession plan is about taking control of what unfold when you’re no longer in the driver’s seat.

For these reasons and more, if you have no estate plan in place for your family enterprise, create one. Unsure where to start, contact a Family Enterprise Advisor through the Family Enterprise Xchange.  An FEA can help you navigate sensitive conversations with multi-generational stakeholders, and distill the advice of accountants, lawyers and professionals from other disciplines without bias. At Foundation Wealth Partners we understand family businesses and the issues in play. Let us help you to empower your family and your business, to protect family relationships and keep your enterprise alive and thriving for multiple generations.