If you’re a small business owner, you may have consulted a lawyer to incorporate your company and prepare any other documents to set your business up for success. But what about your estate plan? While estate planning might not be the first thing you think about when setting up a new business, it’s critical to have a plan in place in case the unthinkable happens. Furthermore, unique considerations come into play for will-makers who own their own business.
As a preliminary note, it’s important to remember that businesses can be structured in many ways and involve complex partnership structures. In this blog post, we’ll be talking primarily about sole proprietorships. These are businesses owned by one person, where there is no legal distinction between the owner and the business itself but may reference other types of businesses when appropriate. For comprehensive estate planning advice that considers the unique needs of your business, be sure to consult with an experienced estate planning lawyer.
What Happens to My Business if I Die Without a Will in Ontario?
If you die without a will in Ontario and are the sole proprietor of your business, the Succession Law Reform Act, R.S.O. 1990, c. S. 26 provides direction regarding how your estate will be handled. If your spouse survives you, they will be entitled to your assets. If your spouse does not survive you, your children will be entitled to your assets.
What Happens to My Business Debt if I Die Without a Will in Ontario?
If you are a sole proprietor and have business debt, that debt will generally be treated the same as personal debt. Under the Succession Law Reform Act, any debts owed by the deceased person will be paid out of the estate before the estate is distributed following the guidelines.
Why Ontario Small Business Owners Need Estate Planning
The main consideration in estate planning for small businesses is: what happens to my business when I pass away?
For small businesses, estate planning is the most important thing you can do to ensure your business is handled the way you want it to be after you’re gone. Here are a few reasons why estate planning is critical for small businesses.
Planning for the Future of Your Business
You’ve worked hard to create a business, and your legacy must be dealt with appropriately. Estate planning for small businesses allows business owners to direct how they want their business to be handled after they pass away. For example, a business owner might want their business to be wound up or sold after they pass away. Alternatively, a business owner might want to see their children “carry on the family business” and choose a successor. Like any asset, a will-maker can provide directions regarding how their business is dealt with in their will.
Succession Planning for Small Businesses
It’s important to confirm your wishes with loved ones in advance. While you might, for example, want your child to take over your business when you pass away, it’s important to discuss your wishes with them beforehand to ensure they are willing and able to carry out your intentions.
It’s also important to consider steps in conjunction with estate planning, like a partnership or shareholder agreement. So, for example, if you’re planning to leave your business to a child after you pass away, there may be circumstances where a partnership or shareholder agreement providing your child with ownership or an interest in your business makes sense strategically. Ensure you consult an estate planning lawyer about developing a plan that meets your financial or otherwise goals.
Handling Business Assets
Chances are that you own assets relating to your business. These assets can go far beyond merchandise – for example, furniture in your business space, leases, or even digital assets. Estate planning for small businesses can help ensure that these assets are dealt with appropriately regardless of your wishes regarding your business’s future.
In the digital era, digital assets are becoming an increasingly common consideration in estate planning. Ensure that digital assets, like social media accounts or business credit card rewards programs, are accounted for in your estate plan.
Meeting Your Tax Obligations
Small business owners must also consider their tax obligations in their estate plans. For tax purposes, the death of a business owner can become more complicated and require additional steps that aren’t found in “typical” estate administration scenarios. For example, if your business collects Harmonized Sales Tax (HST), your estate will need to deregister your HST account and file a final tax return. The business owner’s business number and CRA business accounts will need to be dealt with after filing a final tax return.
Final Thoughts on Estate Planning for Small Businesses
For many small business owners, developing and running a successful business is one of their greatest achievements. Unfortunately, many do not give enough thought to estate planning, resulting in uncertainty regarding the future of their business if the unexpected comes. It’s important to think critically about your estate plan early on to not only ensure that your wishes are respected after you’re gone but to ease the burden for your loved ones by providing clear expectations for the future of your business (not to mention, providing access to digital assets and business details that may be hard to track down in the wake of your passing).
Now is the best time to start if you’re a small business owner and haven’t considered your estate plan yet.
Contact the Ottawa Business and Estate Lawyers at Tierney Stauffer LLP for Guidance with Estate Planning for Small Business
Tierney Stauffer LLP’s client-focused team has the experience to assist clients across various practice areas. Whether it’s planning your estate, protecting your wealth, or creating trusts, we’ll be your trusted advisor.
We assist clients with all aspects of estate planning and estate administration and will work to secure the results you need. Call us at 1-888-799-8057 or contact us online to set up a consultation with an experienced wills and estates lawyer.