As a small business owner, managing your finances can get complex. But one thing is clear — you want your loved ones to be taken care of if something were to happen to you. Working with a CPA, lawyer and financial advisor now can save your family from facing unnecessary stress and costs later.
If you own a business, having an estate plan is essential. This plan will clarify how your business, loans, mortgages and investments should be handled if you pass away suddenly. Without one, your estate could face unexpected taxes. Capital gains are triggered, RRSPs are cashed out and taxes may apply to wrap up your business, potentially reducing what your family receives. With a will or a complete estate plan, you can help maximize the value passed on to your beneficiaries.
Without a will, the courts may decide how your estate is handled, which can increase legal costs and add delays. Let’s talk about how you can avoid that.
What is estate planning?
Estate planning can be as simple as writing down who should inherit what after you pass. However, a full estate plan often includes organizing documents, leaving clear instructions and having open conversations with loved ones. These steps are necessary for your family to be able to manage a lengthy, frustrating process filled with legal and financial hurdles.
Everyone should have a will and an enduring power of attorney. For larger estates, an estate plan may involve a team of advisors, lawyers, accountants and insurance professionals.
Key objectives of estate planning
- Protect family wealth: Ensure your spouse and children are provided for.
- Simplify the process: Avoid leaving a tangled mess for your family to unravel.
- Business succession: Plan for your business so employees and clients aren’t left in the dark.
- Minimize taxes: A proactive approach can save significant tax costs.
Protect family wealth
Life insurance can be invaluable in covering your family’s financial needs after you’re gone. Work with your financial advisor to determine the right amount — consider debt coverage and the income your family might need to maintain their standard of living.
For instance, mortgage insurance is essential since banks expect the mortgage to be paid even if you’re no longer around. A life insurance policy can make sure those payments are covered, sparing your family from unexpected costs.
There are two main types of life insurance to consider:
- Term insurance: Affordable, straightforward coverage for a fixed period (like 20 years). If you outlive the term, you won’t receive anything back.
- Whole life insurance: This option builds equity over time, with a portion of your payments growing in an investment portfolio.
- Want a clearer idea of your needs? Use this calculator or talk to us for personalized advice.
Example: For a healthy 35-year-old, a 20-year term life insurance policy worth $1 million might cost around $75 per month. If you outlive the 20 years, there’s no payout.
On the other hand, a $1 million whole-life policy would cost about $2,000 per month. If you live past the 20 years, the coverage continues for life, and the policy builds cash value. With current market conditions, that cash value could grow to about $760,000 over time, which you could access if needed.
Simplify the process for your family
Creating a “life binder” for your family can make things much easier if something happens to you. Consider including the following:
- A copy of your will, updated after any major life events (like marriage or a new home).
- Life insurance policies.
- A personal net worth statement with relevant documents.
- Contact information for your lawyer, accountant, banker and insurance broker.
- Critical passwords, including those for bank accounts, insurance portals and digital storage. We recommend storing digital files of your will, life insurance policies and share certificates in Hubdoc or Dropbox.
Having joint accounts with your spouse also makes the process easier. A bit of organization now will reduce the chance of family disputes later and make things easier when it matters most.
Business succession and continuity
Think about the future of your business — who would take over if you’re no longer there? Do you have a succession plan, or is your business ready to sell? What is your business worth? Do you have a business continuity or disaster recovery plan? Take the time to document policies, procedures and any critical information about your business operations.
The Business Development Bank of Canada offers great resources to help with business continuity planning, including tips to keep your business running smoothly through unexpected events.
Minimize taxes
Without planning, your estate could be subject to hefty taxes. If you pass away without a spouse, your assets are deemed “sold” immediately before your death, triggering capital gains on properties, stocks or business assets. By planning, you can reduce these costs and transfer more of your estate to your loved ones.
Ranchers and farmers have a lot to gain by planning for succession. Structures like charitable giving, family trusts and estate freezes can all help reduce the tax burden on your estate.
We’re here to help make sure you and your family are prepared. Book an appointment with us today to start your estate planning journey.
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