Estate planning encompasses a multitude of elements, but succession planning for the family businesses is among the most influential for many of our clients. If you run the business and are wondering what post-retirement succession will entail, here are a few components to consider.
You and Your Company
The first thing that may be on your mind is how your relationship with your company will be affected by your retirement. What kind of role will you play in operations after the fact? How can you ensure a high quality of life for yourself throughout retirement? Choosing the right succession plan requires that you consider dozens of factors, including the fair market value of your company, who in your family is best suited to take over, and how much time is needed to ensure that they are prepared for the job. An estate freeze, for instance, can offer you a degree of remaining control over the company as well as continued retirement income.
A pivotal factor shaping your succession will be the potential tax burden on you and your family. Each method of transferring ownership of the company has its own complex set of considerations. While it may seem tempting to sell your stock to your children at a nominal value, this has a way of backfiring. In Canada, the CRA will reassess to determine the FMV of those shares and apply capital gains tax in proportion to the nominal value you sold them for. An estate freeze is commonly cited as a tax-effective strategy, particularly with regards to capital gains. However, finding the right strategy is a highly individualized process.
The technical aspects of retirement and business succession need to be accounted for, but it’s critical not to lose sight of the more personal implications of the process. You’ve built your business from the ground up and your family has helped you to sustain it together. Determining how shares are sold, to whom, and in what amounts is only one part of a larger picture. The same goes for deciding who will have what degree of control over the company. This can be an emotionally complex and challenging experience, so it’s best to seek guidance from succession planning specialists who can help on a more human level, not just with the numbers.
Your family business is undoubtedly a core part of your legacy, but it’s not the only aspect of estate planning that we at MacMillan can help you with. To learn more about what we can do for you, give us a call at 1-833-266-6464.