Why is an estate plan important for retiring business owners
A A

Article Licenses: CA, unknown
Advisor Licenses:

Compliant content provided by Adviceon® Media for educational purposes only.


When a business represents the major component of an estate, planning is vital. Entrepreneurs may think about retirement planning, yet not all business owners implement plans to allow them sufficient freedom to follow their leisure dreams. If you ask the owner of a successful small business if he or she plans to retire, you may hear, “I will never retire because I love what I do”, or “I will retire in 10 years or so.”

Why is this risky planning? Those who feel they never want to retire may not have developed retirement investment interests outside of the company aside from RRSPs. However, most believe their company will provide investment capital when sold, or, if passed on to the next generation, a salary or dividend payments.

Are all your eggs in one basket? Therefore, for some, their personal financial stability is riding 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.

shutterstock_104553182

Estate Planning is vital to Succession Planning. Despite the financial importance of their business, most business 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.

Consider the following:

  • Take the time to do some basic estate planning to determine who will take over the company, and where your retirement income will come from. Revise or complete both your will and power of attorney. Review your personal and/or corporate-owned life insurance, disability coverage, critical illness insurance, long-term care insurance and key-person insurance.
  • Many business owners carry life insurance but miss a very important coverage related to health. Disability insurance and/or critical illness insurance can pay off a buy-sell agreement and provide income.
  • In some cases, the payment of relatively small life insurance premiums can entirely solve the estate’s future capital gains tax problems, or generate capital to replace the tax that will be payable on your RRSPs when both spouses die.
  • Life insurance can also eliminate company debt and help a succeeding son or daughter with new business capital. Finally, it can help fairly equalize the division of your estate among all of your heirs.

 


 

Publisher's Copyright & Legal Use Disclaimer

All articles are a legal copyright of Adviceon®Media and are for educational purposes only. The particulars contained herein were obtained from sources which we believe are reliable, but are not guaranteed by us and may be incomplete. This website is not deemed to be used as a solicitation in a jurisdiction where this representative is not registered. This content is not intended to provide specific personalized advice, including, without limitation, investment, insurance, financial, legal, accounting or tax advice; and any reference to facts and data provided are from various sources believed to be reliable, but we cannot guarantee they are complete or accurate; and it is intended primarily for Canadian residents only, and the information contained herein is subject to change without notice. References in this website to third party goods or services should not be regarded as an endorsement, offer or solicitation of these or any goods or services. Always consult an appropriate professional regarding your particular circumstances before making any financial decision. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision.

Mutual Funds Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investment funds, including segregated fund investments. Please read the fund summary information folder prospectus before investing. Mutual Funds and/or Segregated Funds may not be guaranteed, their market value changes daily and past performance is not indicative of future results. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision. Talk to your advisor before making any financial decision. A description of the key features of the applicable individual variable annuity contract or segregated fund is contained in the Information Folder. Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. Product features are subject to change.

Life Insurance and Segregated Funds Disclaimer

Life Insurance policies vary according to contract terms. Please read any Life Insurance policy contract provided, or the segregated fund summary information folder prospectus before the time of purchase. Full details of coverage, including limitations and exclusions that apply, are set out in the policy of insurance. Commissions, trailing commissions, management fees and expenses may be associated with segregated fund investments which may not be guaranteed and their market value changes daily and past performance is not indicative of future results. A description of the key features of a life insurance policy, a segregated fund; and any applicable individual variable annuity contract is contained in information provided by the company from which it is purchased. Talk to your advisor before making any financial decision. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors. The information provided is accurate to the best of our knowledge as of the date of publication and is general in nature, intended for educational purposes only, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors. Rules and their interpretation may change, affecting the accuracy of the information.

 

A A