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Business Succession Planning

Business owners often face unique challenges when it comes to estate planning and the succession of their business. An effective business succession plan can preserve the value of the business for future generations and ensure sufficient liquidity to cover business-related costs at death and continue business operations. A coherent estate and succession plan can also facilitate a smooth transition after death and reduce the tax liability of the business and beneficiaries. 


Business succession planning typically involves more complex structures such as inter-related corporations and inter vivos trusts. Holding companies may be created to manage assets, or trusts established to reduce or defer tax and protect capital. Business owners also require special tax advice in respect of tax on shares in private corporations, and particular attention must be paid to a myriad of corporate tax and business law issues.

Articles of incorporation, amending articles, shareholders' agreements, and any other business agreements must be carefully reviewed and considered to ensure that the estate plan aligns with any existing contractual obligations. 

The appointment of a suitable personal representative is imperative to preserve the value of a business after death, especially where the business is a sole proprietorship and there are no other directors or officers with the authority to act. A business owner's preferred personal representative or estate trustee must be carefully considered in light of the potential conflicts of interest issues that may arise.

An estate freeze may be an effective strategy where a business owner intends to transfer his or her business to family. An estate freeze usually involves a corporate reorganization of a privately-held business, but may also encompass many other types of planning. The strategy involves a transfer of the value of the future growth of a business from the original owner, usually a parent, to the intended heirs who are typically the children and/or grandchildren. The value of the individual's "personal estate" is fixed (or "frozen") so that any increase in value from the time of the freeze until his or her death is transferred to the intended heirs.  An estate freeze can be implemented in conjunction with a trust or a "multiple will" strategy, and can provide significant income tax advantages and probate fee savings on death. 

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