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Effective estate planning takes a customized approach—and an understanding of your options

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If there’s one common denominator among entrepreneurs, it’s that they’re a determined, relentless bunch who won’t rest until they bring their business vision to life. And the last thing most are worried about is their eventual demise—or the estate planning that should precede it. 

As I outlined in my last article, a lack of estate planning can pose major challenges for business owners whose assets and succession requirements often generate complex administrative issues and hefty tax bills when they pass away. With fewer than half of Canadians have taken the time to prepare a will or keep it current, according to recent Angus Reid data, this is a major (and unnecessary) risk exposure for entrepreneurs. 

Still, many can’t resist the temptation to take a one-size-fits-all approach to estate planning. 

Rest assured, the only way to design an effective and comprehensive estate plan is to work with a group of trusted advisors (including a chartered professional accountant, your financial advisor and an experienced tax or estate lawyer) to prepare a customized strategy that addresses your unique financial situation and objectives, while helping to maximize tax reduction and deferral opportunities. 

This is a highly detailed process that can take months to complete, but it’s well worth the time and effort.  

The good news is that skilled professionals should handle most of the heavy lifting. Your job will be to determine and communicate your estate planning wishes, then allow them to manage the accounting and legal minutiae. The bigger problem is that most entrepreneurs don’t even know what questions to ask, let alone the key high-level concepts that should be on their radar as they embark down the path to estate planning readiness. 

The first—and most fundamental—is ensuring that all wills and powers of attorney are current, which should include a shareholder’s agreement outlining instructions to carry on (or wind down) the business, perhaps steering a post-mortem sale, or guiding share/asset distribution activities to help minimize taxes and provide creditor protection and ensure business continuity.  Remember that if you have an outdated will upon death, your executors are still required to execute its directives to the letter. 

Also consider dual wills for assets that wouldn’t otherwise be subject to probate, such as shares of a private company. And be sure that your estate executors are aware of the myriad tax planning strategies available at death, one example being ‘rights and things’ income tax returns. 

Post-mortem planning is also key. Why? Because if the deceased held shares of a private corporation, the estate could be subject to double taxation. Options to mitigate that risk could include 164(6) loss carryback planning, pipeline planning or a combination of the two. 164(6) planning—named for the corresponding section in the Income Tax Act—essentially converts a capital gain on the deemed disposition of assets at death to a deemed dividend to the estate, thereby mitigating the exposure to double taxation, and in certain cases, with the right tax attributes, provides tax savings. The trick is that it has to be done in the first year after death (i.e., the first ‘executor year’), so time is of the essence. Bear in mind that executors must file a Graduated Rate Estate tax return (which allows an estate to pay income taxes at a graduated rate, among other benefits) to be eligible to employ this strategy. 

Business owners older than 65 may also want to consider options such as using alter ego or joint partner trusts, the advantages of which are confidentiality and probate savings. They also allow an entrepreneur to transfer assets into the trust at cost and defer tax until their death, or that of their partner. 

Overall, you want to make sure you put customized pre-mortem planning strategies in place, and lay the groundwork for your executor to implement effective post-mortem planning to deal with probate fees and, where applicable, double taxation. And you want to start planning now. 

Death may be inevitable, but a chaotic and costly estate succession scenario is completely avoidable.


Armando Iannuzzi is a tax partner at KRP LLP, a Markham, Ont.-based accounting firm for entrepreneurs. Learn more at www.krp.ca 

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