Episode 65 - How to Keep Your Company Thriving After You’re Gone with Michael Scott
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Nicole 00:00:02 Hello and welcome to Your Estate Matters presented by Heritage Trust. Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it's estate related, we'll be talking about it. We're having the conversations today that will help Canadians protect their families, their assets and their legacies tomorrow. So, Michael, thank you so much for being with us.
Michael 00:00:34 Thanks for having me.
Nicole 00:00:35 So we've worked together a lot. You are a long term expert and someone that we rely on for advice. So we really appreciate you sharing all this wisdom with our listeners.
Michael 00:00:44 I'm happy to share. I'm happy to help.
Nicole 00:00:46 So tell us, why is estate planning for a business owner different from estate planning with someone who has mostly personal assets?
Michael 00:00:54 It adds a level of complexity. I would say an individual that owns a business has to address the business, and that involves their ownership stake in it. That might be through a private company, but it also involves addressing the succession of the business itself. And who's going to take control if that person passes away or becomes incapable.
Michael 00:01:14 And how is that going to look? So it just adds a couple of levels of complexity and work that needs to be considered on how they're going to implement that plan.
Nicole 00:01:22 So tell us, what are the main building blocks of a good estate plan for a business owner?
Michael 00:01:28 I would say at the very base level, a business owner, the same as everybody else, should have a will. They should have a power of attorney in place. The will would be there to address. If they pass away, then they have an executor appointed. The executor can then have some authority to gain access to the company through their voting shares to bring themselves in, or somebody else as a director who can then stand in the shoes of the deceased person to carry on management, and then the power of attorney to deal with it if that primary owner hasn't passed away, but they've become incapable. And it's really the same thing. It's having somebody with the authority to sign, to bring in a new director so that they can sign on the voting shares that the business owner holds and bring in someone to then can have authority to deal with the business, though I would say that that's the base.
Michael 00:02:19 And then it depends from there on the details of the business and the value and what the business owners objectives are. You know, if there's a lot of value there, then it might get into the tax planning side both provincially and federally. So on the provincial side, you know, in B.C. we have probate and probate fees. Probate fees is a 1.4% provincial tax, and it's calculated on assets that form part of your estate. So that would include shares of a business owner that they hold in their company or in their business. And those shares, the value of it will be reflective of whatever the value of the business is. So if it has a significant value, then now you're paying 1.4% as a provincial tax, effectively on that 1.4% or on the value of the business. There are ways to get around that. As you know, you're a state lawyer and a state lawyer as well. You can carve out the business or the corporate shares through a separate will, and that effectively allows those shares to be governed and administered by a separate executor through a separate will.
Michael 00:03:19 And it bypasses probate and probate fees. So if there's a lot of value, we might look at that. You know, there are other ways to do it as well. If probate was a concern and if the people are over 65, then maybe they're looking at settling an alter ego or a joint spousal trust and moving the shares out of their estate so that they can bypass probate and govern through the trust instead. And that's more comprehensive planning. So it's not the base. It takes more time. And business owners are busy people. And so it can be difficult to implement that planning because it takes more time. So my approach for clients might be if they had a lot of value in their business, and we do have to be mindful of the tax planning, then I might suggest, “here, why don't we start with just getting a basic plan in place. Let's get your wills in place so that there's something there, and then we can, you know, revisit this more comprehensive planning as we're going.”
Michael 00:04:09 So at least then they've got something. It's not overly time consuming to get a basic plan in place, and then we can focus on a bigger picture plan when time permits for them.
Nicole 00:04:18 Let's talk about that probate fee avoidance. Because if you are going to do two wills or you're going to do one of these sort of fancier alter ego or joint partner trusts, which you mentioned you can do if you're 65 or older, that is additional cost, additional administrative burden. How much value roughly do you think the business should have to warrant those additional fees and complexity?
Michael 00:04:45 Right. Yeah, it's a good question. And it's certainly one that comes up. And I can't speak for the, you know, our industry as a whole because I think that all of us that work in this area would have different viewpoints on that. But generally for us or for me, I shouldn't even speak for everybody in my firm. I would say if somebody has north of 5 million in value inside a company interests, then that at least triggers for me to have the discussion with clients to say, hey, look, you got a lot of value there.
Michael 00:05:15 There's going to be probate on this, and it's 1.4% on 5 million. So that's going to be, you know, close to 70 grand or in that range. There is this other thing we can do, which is the carve out through a separate will. It's going to cost you an extra cost to get it set up. But then there's your balance as you're saving a potential 70 grand and you're paying this to do it. So I would have the conversation then, but I wouldn't necessarily recommend it on those numbers where people have north of 10 million, then I'm saying, you know, I think it might be a good idea to do this. There are other factors that come into play as well outside of just the numbers. So, you know, the most significant of which, in my view, would be the complexity of the administration itself. Because if you then have, you know, two wills set up and you have to have two separate executors acting on each will, that really adds levels of complexity to the administration of the estate, because now you've got, you know, two separate people dealing with the administration, and they've got to work together to an extent, because it's ultimately a just one estate.
Michael 00:06:15 And, you know, they have to figure out a way to deal with the taxes and how the distributions and expenses are going to work. And where's their liquidity, you know, to pay those expenses in the short term? And where is there not liquidity? And there's just a lot of factors that come into play. And it can add a lot of expense, you know, professional expense on the administration. So I think there's a balance there as well. So sometimes even if you can save the probate fees, keeping it simple and paying the probate fees can still be a better result than bypassing probate. But adding that complexity for your family in succession.
Nicole 00:06:48 So let's talk about…you mentioned federal taxes as well. So as we know we don't have gift or estate tax like the US, but we do have capital gains. And when a business owner dies, they're deemed to have sold all their assets at fair market value. That can trigger a significant capital gains bill. What are some strategies that you recommend for business owners to mitigate that tax bill?
Michael 00:07:12 The most common one that would come up would be carrying out an estate freeze.
Michael 00:07:16 So I would have that conversation with clients where they have corporate interests. There's value in there. And as you said, you know, that value is going to be taxable as a capital gain. So if they've got shares in a company and there is, you know, there's some growth in the shares, maybe they started a business. So it started with zero value. But now it's worth a million bucks. And so that growth to a million is taxable on death as a capital gain. And on today's numbers you know loosely ends up being about 25%. So that would be a $250,000 capital gain on death? There's not a ton we can do about that. But if there's prospects of growth, if that million in the next 20 years might turn into 10 million, then all that future growth as well, if we do, nothing is also going to further capital gains, and it'll be a larger tax hit on death. And there is a way to freeze out the value today so that the growth is then captured through a separate entity, usually a trust.
Michael 00:08:15 And then now we can plan around the taxes. We can plan around that million dollars using that example. And then all the growth we can address at a later date. So you can run it through a family trust for 21 years and either shift it out to your kids or whoever your beneficiaries might be at that point, and then put the cap that additional capital gain accrual into their hands, so that it's effectively skips a generation on when it's going to become due and payable, or take it back, depending on what the circumstances are at the given time.
Nicole 00:08:44 If the kids agree to give it back.
Michael 00:08:46 Yeah. If it's while it's in the family trust. Right. Just not giving it to the kids. Just take the shares back for yourself. Right. I'd say the most common scenarios that that planning will come up. So one is where there's significant growth prospects. If the business owner does have kids, and the intent is to effectively pass that value to their kids down the road, then we'd also be mindful of how it will be.
Michael 00:09:09 Kids are because if they're really, really young, you know, these family trusts can only run for 20, 21 years. And then at the 21 year mark, there's a deemed disposition of the shares. So the capital gain is triggered automatically in the hands of the family trust at that time.
Nicole 00:09:23 Unless you roll it out to the beneficiaries.
Michael 00:09:25 Unless you roll it out. So at the 21 year mark or just prior to, you really have to roll it out. Right. And if the plan is to roll it out to the kids, but they're in their early 20s or younger for that matter, then you might not want to give it to them, because they might be too immature at that point to take an asset. Or maybe they're in complicated relationships and you don't know what's going to happen with those. And, you know, putting those assets into their hands just makes it a little easier for a potential spouse to claim against. So we would do it where the kids are a little older. So if you're over ten or in their teens or maybe even in their 20s or even 30s, then it might make sense to do it at that point.
Michael 00:10:02 So 21 years from then, now your kids are in their 30s or 40 or 50 even, and hopefully by that point they're mature enough and settled enough in life where the business owner feels comfortable enough to just distribute that value out to them, and then you're really maximizing benefits.
Nicole 00:10:17 But we also see at 21 years, sometimes the kids are asked to basically transfer the shares back into a successor trust or a similar refreeze or things like that.
Michael 00:10:28 Yes. So that can happen as well. That's very, very long term planning.
Nicole 00:10:31 Assuming they consent. You've got to make sure you've got the kids onside. They don't always. Yes.
Michael 00:10:36 Right. I've seen numerous occasions where people have actually instead of doing any type of freeze. Just when setting up the business itself, they just put their kids directly on as shareholders. Just as a way to I suppose they would in their minds, you know, think that they could just declare dividends to the kids and income split. Although there are certainly some limitations on being able to do that in tax effective ways now.
Michael 00:10:58 But then the trouble is that now they come to someone like me or you and they want to do this planning. You know, the estate freeze makes sense. But as you pointed out, and I agree then now, you know, the kids have shares. And in order to do the freeze now, we need all of them to agree to do it as well, where they're effectively giving up their own growth and value in order to shift it back into the parent's hands and control through a family trust. Those are tough. Those are tough. I mean, hopefully, you know where families are all really tight. It can be okay because the kids, you know, will then just go with whatever parents say makes sense. But yeah, certainly I've seen situations where it's been tough to pull the trigger on those because the kids hold some cards.
Nicole 00:11:35 Let's talk about some other proactive planning. So can you talk about if there's other owners of like buy, sell or shareholders agreements and how those might work in terms of life insurance to deal with the death or incapacity of an owner.
Michael 00:11:50 Yeah. Certainly another level of complexity added where it's not a sole practitioner or business. They've got partners and yeah, I mean the typical set up to facilitate, you know, what happens with the business if one of those business partners passes away, is to have a shareholders agreement in place as a document to govern, what are the exit strategies? What happens if one of the business partners passes away? How is the business that interest going to be valued? Is the business going to buy back the or the company going to buy back the shares, or is the other shareholder going to buy the other one out? How are they going to fund that? Is it going to be a payment? You know, because maybe the business doesn't have liquidity. So is it going to be an installment payment program over a number of years, or is there going to be life insurance owned by the company on the lives of these business partners to create some liquidity, to carry out the buyout? And all of that stuff needs to be considered, and typically it's all governed through a shareholders agreement.
Nicole 00:12:54 And what about if a key business owner loses capacity or dies? Like what about key person insurance? Do you see that often?
Michael 00:13:04 Yes, but I don't know as much about it. Like I don't know how it would work for incapacity. I have seen shareholders agreements that address that. Not on the insurance side, but more just on, like what happens if one of the business partners becomes incapable. You know, sometimes the shareholders agreement will say that at that stage that triggers a potential buyout where the other one because now that person can't really, you know, do the work. So the other is really left holding the bag and doing all the work. And they don't want to do it for the benefit of. If it's a 50/50 business partnership arrangement, they don't want to be doing 100% of the work and only getting paid 50% of the revenues. So yeah, I've seen shareholders agreement that have had that as a trigger for a buyout option, but I don't know. Yeah. What's your experience on that?
Nicole 00:13:51 Oh I've seen scenarios like that.
Nicole 00:13:53 And the other thing about shareholder agreements is it's not just death or disability. It can be like what happens if one of the owners becomes insolvent? What if one of them has a family law issue? What if they just stop getting along? Maybe you can talk to people. That can be things like shotgun arrangements, where a valuation is triggered, where one party can buy out the other. Can you talk about that?
Michael 00:14:15 So for a shotgun, I got to think about this. So we're kind of creeping ever so slightly outside of my area of expertise. I have been involved in shareholders agreements, but I usually get to one of our corporate lawyers to deal with that. shotgun clause is if you've got two business owners just using that example, sticking with that program, it's where one offers to the other to buy them out, and if the other does not agree to buy them out, then it forces them to buy out the other. So it's one way or the other. You're kind of putting all your cards on the table and saying, look, we're not carrying on as a business relationship anymore.
Michael 00:14:48 Either I'm buying you out or you're buying me out. I'm pretty sure that you're right.
Nicole 00:14:52 Well, it depends how it's drafted, but it can often be a scenario where they reach some sort of impasse and or one of them gets assigned into bankruptcy. Or I think the idea is in terms of planning, like for small business owners, is, you know, you're struggling to just, you know, get the business off the ground. You know, you're struggling to make payroll. You know, costs are rising. We're in an inflationary environment. We've got trade, you know, instability. And a lot of people are just focusing on survival. But I think proactive planning, whether it's certainly important in terms of an estate planning, like if somebody's going to die or be incapable, but also what if one of those other bad things happens, like insolvency or divorce or not getting along? I think the message we want people to know is proactive planning. You know, certainly with a shareholders agreement or buy, sell is part of good estate planning and yet may cost 5000 bucks, maybe even 10,000 bucks.
Nicole 00:15:53 But that is going to save you a world of hurt if you don't. I guess maybe we can explain that to small business owners that are just trying to survive the day to day right now.
Michael 00:16:04 Yeah, it's tough because there's added complexity. It adds to the legal cost to get these plans set up. And sometimes that's a bit of a deterrent for people to proceed. Like that can be the, you know, the blocker for them. But then it goes back to, you know, at very minimum just put a basic plan together. Like if you don't want to pay ten grand to set up a more comprehensive plan, pay three grand to set up a basic plan at least. So then you've got something in place because something is going to be better than nothing.
Nicole 00:16:29 And so by basic plan, what does that mean to you?
Michael 00:16:31 Having a will and a power of attorney in place, at minimum. Yeah.
Nicole 00:16:35 Yeah. That's good. So what surprises families the most? Like, if there is a sudden incapacity or death when you've got a business owning family, what do you see on the other side of that?
Michael 00:16:46 It depends on the business.
Michael 00:16:47 I mean, if the business owner passes away, in some cases, the family is well aware of the business and how it's owned. Sometimes they're involved, and in those circumstances it can be easier to deal with the succession of it. It can also be more complicated depending on, you know, how many kids there are and is there one involved and then the other ones are not? Or are all of them involved? And what are their expectations on what's going to happen with it, and are they all going to co-own it together? Or there are lots of questions that need to be unraveled and answered on the bigger picture succession of it. But in the more immediate case it's, you know, who has authority to step in to deal with the ongoing management. Does somebody have authority to access the bank accounts and sign checks to make sure that payroll continues on, deal with CRA on whatever tax compliance is required, and have a will will do that. So at least in BC, having a will is enough to give authority for an executor appointed on a will to access the private company shares to vote in a new director, who then can deal with those things that can be done pretty quickly.
Michael 00:17:55 So within a matter of weeks, that's if there's a will. So if there's no will, then it's a big mess. I'm sure you've had to deal with that as well. I've had a number of occasions where a business owner has passed away unexpectedly and there's no will. They hadn't done any planning. And then there's, you know, maybe there's a couple of kids or a surviving spouse, but if there's no will, then nobody's appointed as executor. So nobody has any immediate authority to vote on the shares to bring in a new director. And then it's a big mess so that now we're scrambling probably to apply to the court to get somebody appointed as the administrator of the estate. Meanwhile, things for the company are sitting in limbo mode, and the family, often in that circumstance, are just trying to do the best they can with the authority that they have or the little authority that they have. And it can be really stressful and sometimes detrimental to the company, the business. And just to, you know, in terms of maintaining value in the short term.
Michael 00:18:51 So that's the tough program.
Nicole 00:18:52 So at Heritage Trust, we've seen people have died with running professional practices and small businesses and surprisingly, no planning. I guess if you think half of Canadians roughly haven't done planning. So maybe it's not that surprising. We often get emergency court appointments and then have to step in and try to immediately stabilize the business. And we do the best we can. But the reality is it's stressful. It's hard to preserve value. You know, you've got a third party coming in that is, you know, trying to learn the business in real time. So if you think about you've worked so hard, you've sacrificed, you've taken risk, you've built wealth, you've got important employees, you've got important customers and patients. And, you know, it really puts everyone in the lurch when there's a scramble. The other thing we see at Heritage Trust is maybe the business, like we have one right now where there's a portfolio of multifamily properties and the person worked really hard, bought these properties, held them for decades, and they're significant value.
Nicole 00:19:56 But there wasn't as much compliance, I would say, as there could have been. And so the appointed executor took a look at the mess and said, you know, I don't want to take on this burden or this risk. And so what happens when you have to get a professional administrator appointed is that we step in with teams of lawyers and accountants and property management people, and we do the very best we can. But the reality is we end up spending six figures on professional fees trying to write the ship, right? Whereas if somebody had done sort of more and again, it doesn't have to be perfect. But if you're at least fouling your textures every year, you know, you are filing your annual reports of your companies, you've got like a basic succession plan, i.e. if you're suddenly not there, what are the critical things people need to know? You're going to save an enormous amount of time and money for your beneficiaries. So it's kind of like we see a lot of the instances where it hasn't been planned.
Nicole 00:20:58 Yeah. And the reality is it just causes delay and expense that wouldn't otherwise have had to be spent. So, you know, what do you want to do? Do you want to leave money to your family or to your preferred beneficiaries? Maybe it's charity, or do you want to leave money to lawyers and accountants in the CRA? That is more than you would have had to otherwise, right? It's sort of like a small amount of planning now or a big expense later.
Michael 00:21:21 And do you know it beyond just even the financial part of it? Yeah. I find and you tell me if you feel similarly. I meet with a lot of clients annually to do estate planning. You big and small business owners and non business owners. And I find almost all of them when everything is wrapped up. There's a piece of mind element to it where they're just like okay this has been sitting as a to do for me for so long and it's been stressing me out and I'm so thankful that it's done. And most people are surprised how simple it can be to do it.
Michael 00:21:53 So I think they go in thinking this is going to be a stressful and strenuous process, and then it turns out that it really doesn't need to be that way. So it's not as bad as people think.
Nicole 00:22:02 It doesn't have to be super expensive. It doesn't have to be really onerous. Right? To even just put the basics in place. So there's not that many tax reduction strategies anymore. But what about a Canadian small business that, you know, somebody has died, or they're looking at selling it even to the employees or to a third party. What exemptions might be available to them?
Michael 00:22:25 Yeah, we were talking about the estate freeze, and we kind of talked about how it's doing. That estate freeze is beneficial for effectively locking in your tax exposure and moving the growth to the next generation. But the carrying out an estate freeze is also effective for tax planning on a potential sale of the business down the road. And how that works is. So let's use the example of a business owner.
Michael 00:22:50 He's the sole owner of the business. And using those numbers that we've been using before, it's worth a million bucks. But there's lots of prospects for future growth. It's not a matter of him or her wanting to keep it for the next 20 years and pass it to their kids. They're more thinking, I'm going to sell it in the next five years and try to wrap it up. So if somebody like that comes to me, then I'm saying, okay, well, if we do nothing, so firstly talk to your accountant. There are tax benefits or there's an exemption. It's called the lifetime capital gains exemption. I think every Canadian individual has it. And I think it's right now around 1.2 or 1.3 million that can be exempted off of the capital gain. When you sell your shares in a business.
Nicole 00:23:34 A small business corporation shares, it's got a CPC. What's that?
Michael 00:23:37 Well, that's the catch. In order to qualify for that exemption, the company has to be a qualified small business corporation.
Michael 00:23:45 And in order to be a qualified small business corporation, the revenues of the company have to be primarily business revenues.
Nicole 00:23:51 Active business.
Michael 00:23:52 You can't have passive assets sitting in the company generating passive income. And people end up in situations like that where, you know, they've got their company that's been doing well. They're retaining earnings in the company. They don't need to draw it all out for themselves. And then it's invested in a portfolio somewhere. But that's a passive asset. So that can taint the stat that qualified small business corporation status, which then you'd lose the lifetime capital gains exemption. You know, if you're going to sell your business to a prospective buyer, the buyer doesn't want to buy your investment portfolio. They just want to buy the business. So there's another element to it being if you're planning to sell. You probably need to clean out the company so that it's nice and clean for sale so that it doesn't have those passive investments, so that you're simply just selling the business itself. And there are ways to do that.
Michael 00:24:38 So that's usually a conversation with the business owner's accountant because they'll have all the numbers. Let's figure out what's in there. Let's figure out ways that we can clean it out. That will be as tax efficient as possible. Oftentimes that involves carrying out an estate freeze. So that would be the business owner exchanging their if they've got all the common shares in the company, which is where all the value is. They can exchange those common shares for fixed value preferred shares if it's worth a million bucks. They do it for $1 million, so they end up with $1 million of preferred shares. And now there's no common shareholder in the company. And that's all tax deferred that you can do that on a tax deferred basis. And then you bring in a family trust. You settle a family trust. It subscribes for the common shares. Going forward, the family trust will start with no value, because there's still $1 million owed to the business owner through the preferred shares. And if the business is worth $1 million and it's a wash, all the growth now will be captured in that trust.
Michael 00:25:36 And so over the next five years, if it does grow by another million or a couple million bucks, then that growth is now captured in the family trust. So when the business is sold, the family trust would sell its shares and then the business owner will sell its preferred shares. The business owner can claim the lifetime capital gains exemption on its preferred shares, and then the shares sold by the family trust. If the business owner has himself and his wife and his kids or others as beneficiaries, he or she can allocate the capital gain the family trust has now for the sale of its shares out to the beneficiaries, where you're effectively Multiplying the lifetime capital gains exemption by the number of beneficiaries you're allocating to. Having said that, the business owner has to be willing to actually give them the money because you can't just allocate the capital gain without actually giving them money. But it is a way to maximize lifetime capital gains exemption. And then the other part of that family trust that we would typically do on the clean out, the purification of is if there are passive investments in the company, then you do that freeze.
Michael 00:26:39 You've got the family trust. Now we would also incorporate a new company to become, quote unquote, the new holding company, where they would use that to hold the passive investments and it could be a beneficiary of the family trust. And then now you've got this channel from the business company to the family trust, and then from family trust to the new holding company where you can move those investments through, you can do it through inter corporate dividends, where it can be done without attracting tax. You just have to be mindful of what the investments are and whether there are capital gains. And yeah, that's a very simple and basic structure that we would look to implement in order to clean out the company for, to make it more attractive to buyers, and also to ensure that it will be a qualified small business corporation so that the business owner can maximize his lifetime capital gains exemption benefits.
Nicole 00:27:27 So, small business owners, it's important to proactively work with your lawyer and accountant because you can save a ton of tax if you do proactive planning and something else we haven't talked about.
Nicole 00:27:38 But the accountants can tell small business owners there's things like capital dividend accounts and something called DTO accounts, and that if you have a good tax accountant, there are ways to legally pull money out of the company where you're not necessarily getting a huge tax hit. So proactive, ongoing partnership with a good lawyer and accountant can save a ton of money. So let's talk about keeping the business alive. So say somebody as they were a proprietor and are they self incorporated? The owners? The only director. The only shareholder? The only person with signing authority. What happens if they're on a plane to Hawaii and it doesn't make it? What happens the next morning?
Michael 00:28:21 For a sole business owner? I mean, nobody has any immediate authority then to deal with and assuming that the business is owned through a company. In that circumstance, it depends on the business and maybe they have employees. So things, you know, in terms of the immediate next day, it will depend a little bit on how involved the business owner is and the actual operations, if they're a key person where they're actively involved.
Michael 00:28:48 That can be problematic because, you know, the business operations, if they can't operate without that person, then you've got a problem. If they've set it up in a way where they've kind of lessened their role and put more responsibility on a management team or on employees, then I would think that the business can carry on as is in the very, very short term. But eventually somebody needs to step in to be able to sign banking matters and do all that.
Nicole 00:29:14 So what do you do to facilitate that? What do you do? What does the lawyer have to do?
Michael 00:29:18 If they're a successor or successors? Phone me up. My first question would be does the business owner have a will? If they do, we want to know. We need to know that you know. Do they have an executor appointed because it's the executor that's going to have authority? We would need the name of the company we'd run a search to see. Is there a law firm that holds the corporate books? If there is, then maybe we're contacting that law firm to get our hands on the corporate record so that we can take a closer look to see, you know, how are the shares owned? Who holds the voting rights? Who are the directors? If there is just the one director and now that director is gone and there is a will, then, you know, I think we're probably talking to the executor about, you know, who should we appoint as a director? Somebody needs to step in.
Michael 00:30:00 Typically the executor will step in, but not always, because sometimes I think you were saying, and I agree, Some businesses have a lot of risk, and people don't want to step into that risky role because you take that director appointment. That puts the responsibility on you. And some people aren't comfortable with that. But in most cases, the executor will go on. They'll appoint themselves as director, and then they'll have to get a good feel for the lay of the land where things stand. Maybe that's a conversation with the accountant as well, because the accountant for the company is going to have all the financial statements and have a sense of where the accounts are. And maybe it's talking to key employees or maybe a management team to figure out, you know, what needs to be done. I've had lots of situations like that. And for trust companies too, where they've had to step in and deal with active businesses, and that can be really difficult for anyone like us because we have our business and we and we know our business, but we don't know this other person's business.
Michael 00:30:56 That can be really tough for someone stepping in. And if they don't know, you know, there are business consultants that I've seen that before. I've seen people hire business consultants to come in and make sure that everything's operating the way that it should. And, you know, people have that safety net that they can go to if they really don't know what to do.
Nicole 00:31:13 Okay. So, Michael, before we wrap up, I'm going to give you a few things business owners say all the time. And I want you to tell me if they're dangerous or red flags. Are you ready? Okay. Number one, my spouse knows what I want. So it's all okay.
Michael 00:31:26 Yeah, that's a red flag. my answer is so often it depends. And that's just the typical answer for a lawyer. Because we like to dive into the finer. We need detail in order to be able to give proper analysis. But it depends on, you know, is this a blended family? Is this a second marriage or is this a hoppy kind of single family where the kids are all one and the same for both spouses? Is there transparency amongst the whole family where the wife knows, but the kids also know, or do the kids not know what's going on and it's just the wife? I mean, I would be asking those questions, depending.
Michael 00:32:00 Okay. If the wife knows everything, what about your other people that are important in your planning? Are they on the same page as your wife? Do they get along well? Do they not? I'm all for transparency, so I am a supporter of being transparent on estate planning with our clients, but also with their families. I've had meetings like that before where we've done comprehensive plans for business owners, where kids might be involved, or there might just be a lot of value, and they're curious to know what's happening with succession for themselves, where it's maybe a blended family. And we've brought everyone in and we have discussions and fielded questions, and so that everybody knows and is on the same page. You can't always do that because sometimes the dynamics are just too far gone to be transparent or people will have. If everybody knows what's going on, then they're just less likely to turn into a fight.
Nicole 00:32:48 So that's my exact experience from years in estate planning. And, you know, our own family.
Nicole 00:32:54 We are a business owning, blended family. And because of what I've seen, we do what you recommend. We're very transparent with the kids about this is what we're doing. This is why this is what the plan is. You don't have to tell them every value figure. But generally speaking, sharing what the plan is, it helps a lot in terms of preventing conflict in the future.
Michael 00:33:16 Yeah that's.
Nicole 00:33:16 Great. Another statement my accountant handles the tax, so I'm sure it's all covered.
Michael 00:33:22 I guess my question would be who's your accountant and can I have a quick chat with them. Because that could be fine. I mean, there are lots of excellent accountants out there but they all have different approaches, you know, similar to all professionals, really. And some of them just keep their heads down and focus on the tax reporting. And some of them get more involved in the business, not operations side, but the financial side, I suppose, and even the bigger picture planning side. So some of them really want to engage on that and some don't.
Michael 00:33:48 And I would probably want to take a look at it, but it could be fine.
Nicole 00:33:53 Another statement: my business partner and I have a handshake deal.
Michael 00:33:56 Oh, that's always a problem. Yeah, that's a problem. And, for obvious reasons, if that business owner then passes away and now your successors step in and try to deal with it and try to uphold that handshake agreement. What do they have to do to back up what the agreement was even to be? What if the other owner says, no, that's not what we agreed to. We agreed to this, and who's to say otherwise? That's just asking for trouble. I mean, certainly it should be in writing. And typically something like that would be done through a shareholders agreement. So business owners might consider, okay, here's what the deal will be. But they might not think of all the little little parts to it that might be relevant. And then it comes to someone like me and then also probably the other business owners lawyer, because they'll get a lawyer as well.
Michael 00:34:43 And then they realize, oh, you know, crap, there's a bunch of other things that we didn't consider when dealing with this and that are going to be problematic now. So it should be thought out and maybe with some professional help to map it out. And in a perfect world, it's done in writing.
Nicole 00:34:56 So a final statement we're juggling. We're just trying to keep everything afloat. We'll deal with it when we're closer to retirement.
Michael 00:35:03 So it's back to what I mentioned earlier. So people are busy. Okay. If you don't have the time to really engage and put a comprehensive plan together, now let's at least put a simple plan together for you. Let's get a will, power of attorney, a health representation agreement set up for you. At least then somebody will have the authority to step in as a director so they can vote on your shares to bring themselves in as director. At the very minimum, I would say let's just at least do that. It won't take too much time. It won't be too expensive.
Michael 00:35:34 And then, sure, we'll reengage on the bigger picture plan when you retire. Yeah.
Nicole 00:35:39 Great. Well, Michael, this has been amazing. Thank you so much. Is there anything you want to leave our listeners with?
Michael 00:35:44 What I'd want to say. And similar to what we've been talking about is it doesn't need to be overly complicated to get proper planning in place. It doesn't need to be overly expensive. It doesn't need to be overly time consuming. Go and meet with your professional advisors to get this stuff done. It's just going to really help your family in the long run if anything goes awry.
Nicole 00:36:02 Great. Thank you so much.
Michael 00:36:03 My pleasure. Thanks for having me.
Nicole 00:36:06 This podcast is for informational purposes only and should not be considered individual, legal, financial, or tax advice. Make sure to consult the advisor of your choice to advise you on your own circumstances.
Nicole 00:36:20 Thank you for joining us for this episode of Your Estate Matters. If you like this podcast, make sure to follow it on your podcast platform of choice.
Nicole 00:36:28 Whether you're planning your own estate or your acting as executor for somebody else's heritage, trust can help partner with Heritage Trust to protect your family, your assets, and your legacy. If you'd like more information about Heritage Trust, please visit our website at Heritage Trust. This podcast is produced by Podfather Creative.
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