Robert Carducci, RRC®
Financial Planner
Financial Planner
Article Licenses: CA, DL, unknown, unknown
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Compliant content provided by Adviceon® Media for educational purposes only.
Getting into business is a lot easier than getting out. Many successful family businesses have accrued capital gains in the millions. The tax payable is so high that the business cannot afford the liability once the owner dies at least without liquidating.
One way to cover the tax liability is to save for it. The problem arises if the owner dies too soon, or the money gets used for an emergency or a new opportunity, or if the savings goal is impossible for the company to achieve.
A business owner’s retirement may depend on an estate plan.
Many business owners base their personal financial stability on the future success of the company. When a business represents the major value of an estate, planning becomes necessary. Yet, many are not convinced that they need to plan their estate or the succession of their business.
Find out what your tax liability will be. Despite the financial importance of their business, most owners do not know what the tax liability would be if both spouses were to die. An estate plan can ensure that these taxes will be paid from one or a combination of the following sources:
· Life insurance.
· The business, from cash flow or liquid assets.
· RRSPs (also taxed when both spouses die).
· Non-registered investments.
Frequently review your capital gains tax liability. In some cases, the payment of relatively small life insurance premiums can entirely solve the estate’s future capital gains tax problems, and/or generate capital to replace the tax that will be payable on your RRSPs when both spouses die.
When you buy life insurance it immediately covers the entire estimated liability risk, which is due. The benefit is paid upon the owner’s death (or the death of a surviving spouse).
Put succession planning on your agenda. Consider taking the time to do some succession training when you are active in the business, passing on what you know, while unifying current action with your estate plan. Sometimes successful business owners, while waiting for the perfect person to take over, run out of time.
Determine who will take over the company. If you are a family member, an employee, or a competitor, you will need to begin negotiating with your successor(s). Income from a good succession plan may nicely increase your retirement income. Therefore, it is good to know where it will come from.
Keep your legal documents current. Revise or complete both your will and power of attorney. Review your personal and/or corporate-owned life insurance, and disability coverage.
Establish or update your buy-sell agreement. Make sure your buy-sell and key-person agreements and applicable life insurance, is current and sufficient to cover your succession plans.
Other uses of new business capital offered by life insurance. A sole owner may buy enough life insurance to add capital to offer additional financial stability where a wife, son, or daughter goes through the transition to actually run the business. Insurance can also eliminate company debt to give a succeeding son or daughter a fresh start. Finally, it can fairly equalize the division of your estate among all of your heirs.
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