While your average Canadian family still has more than one child, it’s not unusual for only one of them to become interested and involved in the family business. This can create some unique challenges for retired entrepreneurs as they try to balance their estate and consider how to fairly divide inheritances. Here are a few things to consider as you plan.
Talk to Your Kids. Sometimes a family dynamic isn’t quite what it seems. People have tendency to take for granted that they know what their kids are thinking without having to ask, and much of the time they’re right. But with something as important as your estate, it’s necessary to actually ask rather than assume.
If one of your children who has, up until this point, not been involved with the business really wants to be, they may greatly resent their sibling who they see as just being handed the business. Inversely, you may have a child who has given your business many years of their life already, and they may want to explore other opportunities and feel trapped. They may very well resent their siblings who they see as weaseling out of family obligation.
Creating a strong business succession plan is a key part of your retirement and life planning, but for many families, protecting sibling relationships is an even more important aspect. Take the time to talk with each of your kids one-on-one, and try not to ask leading questions that make assumptions.
Remember Capital Gains & Taxes. While Canada doesn’t have inheritance taxes, the capital gains and taxes on properties (other than your primary residence) and business can be overwhelming for your estate if most of your assets are illiquid. This can lead to difficult challenges for your children as they struggle to find enough liquid capital to cover the costs or even consider selling assets. One way to help reduce the capital gains your estate owes on your business is to perform an estate freeze when you retire.
An estate freeze will prevent the value of your shares from growing, so your estate advisor can calculate exactly how much tax will be owed. Therefore you can plan ahead to ensure enough liquid capital is available to cover the capital gains. Keep taxes in mind as you balance your estate and ensure each child is receiving a fair inheritance after taxes are considered.
The friendly personalized estate advisors at MacMillan Estate Planning have had the privilege of working with many entrepreneurs over our 25 years. We’ve become experts at helping craft life plans that allow you to retain the lifestyle you want throughout your retirement while ensuring generous, fair inheritances for your future beneficiaries. Let our team help create a life plan that takes your unique family dynamic into account today!