INCORPORATING YOUR BUSINESS AS AN ESTATE PLAN
There are several aspects of incorporating your business that can become important when estate planning is considered. The structure of your business incorporation and your plans for your shares after your death should be considered as an estate planning tool.
Incorporating your business and implementing an appropriate share structure for your corporation can provide you with greater flexibility when transferring your business to family members during your lifetime or upon your death. Proper planning can reduce capital gains taxes payable by your estate.
A corporation’s shares are considered to be capital property, and are therefore deemed to have been disposed of for tax purposes upon a shareholder’s death. If the shareholder’s beneficiaries are their children, the tax liability resulting from the transfer of the shares could be large enough that the business could have to be sold or mortgaged to pay the taxes. However, shares can be rolled over to a spouse upon a shareholder’s death to defer taxation until they are sold to a third party. It is important to consider how the business will continue after your death—if you plan for your spouse, children or other beneficiaries to maintain the business, it is important to figure out what tax liabilities will arise and how they can be paid for. Life insurance can be purchased for a shareholder that can cover this expense.
If there are multiple owners of a corporation, the normal expectation is that when an owner dies, one or more of the other owners will purchase their shares and the business will continue. To make sure this happens, the owners should execute a buy-sell agreement containing specific details of the transaction during their lifetimes.
Feel free to contact us at any point for assistance or advice related to Business or Corporate Law, Estate Law, Estate Planning, Estate Administration or Estate Litigation. We may be reached at 705-435-4339 / 1-877-85LEGAL (1-877-855-3425) or contact us via email.