4 tips for succession and estate planning
By Gordon S. Campbell and Matthew Maclean
By Gordon S. Campbell and Matthew Maclean
Although skilled tax lawyers may dispute the second half of Mark Twain’s famous claim that “the only two certainties in life are death and taxes,” the death part is hard to avoid. The urgency of succession planning for business owners is particularly acute, as declining health might require others to run the business long before the passing of the founder.
Succession planning is much more than just having a will. It extends to business structuring to make transitions legally smooth and tax efficient.
As business lawyers who handle both the solicitor side of drawing up succession and estate plans, and the barrister side of estate and business litigation disputes, here are top four tips for successful succession planning:
1. Draft a Will and Carefully Choose the Executor
The best way to paralyze a business upon death is not having a will, leading to legal strife among potential beneficiaries, and simple paralysis of ongoing operations if no one can legally access bank accounts or sign contracts.
Having a will is important, but so is choosing a wise and prudent executor. Nothing destroys a sound estate plan faster than an unsound executor. Name alternate executors in case your first choice can’t or won’t act.
2. Draft a Continuing POA for Property and Carefully choose the attorney
With Canadians living longer, powers of attorney (POA) have taken on increasing importance as declining mental and physical health may be drawn out over longer periods of time. Those running agri-businesses especially need a reliable POA in place. An accident at a younger age could lead to a temporary incapacity that might paralyze business operations as readily as not having a will.
Similar to picking your executor, be careful with who you name as your attorney for property. A POA is a very powerful document. It’s a “continuing POA for property” because it keeps working during incapacity, in contrast to a regular POA which is usually set up for a limited time period and purpose, and often gets automatically revoked upon any incapacity. Consider naming alternate attorneys.
You can make your continuing POA for property become effective as soon as it is signed – but the attorney named must be in possession of it in order to use it – or have it take effect upon incapacity. Being effective immediately could avoid lengthy delays over medical examinations to determine whether you really are incapacitated, however it runs the risk of an attorney acting without your instructions while you are still capable.
In a POA, you can also stipulate limitations on actions your attorneys can take, like giving a POA to manage bank accounts and investments and pay invoices, but not to sell real estate.
3. Draft a POA for Personal Care
You can consider being quite liberal in who you name as attorneys for personal care because you will want them to be quickly available onsite when required. You can name as many people as you wish, and name them jointly (where they all have to decide), or jointly and severally (where any one of them can decide). We usually suggest joint and several naming in powers of attorney for personal care (but not in continuing POA for property). Maximize the chance of someone being there to make decisions when and where you need them.
4. Know the best Form of Business Organization for Succession
Is your business operating as a sole proprietor, partnership, or corporation? How it is legally set up may affect the way a succession can proceed.
There is no one optimal form of business organization for a smooth succession, though only a corporation can survive death of a principal. You should consult both a lawyer and a Certified Professional Accountant to determine the best business forms for smooth successions, as well as to draft your required will and POAs. Drafting a more elaborate integrated “succession plan” would best prepare for future transitions.
Gordon S. Campbell is a barrister practicing business, estate and POA litigation, and Matthew MacLean is a solicitor practicing corporate, estate and real estate law throughout Ontario with Aubry Campbell MacLean.