Do your heirs expect to inherit?

Do your heirs expect to inherit an old homestead property, a family cottage, a residence, your farm, an art collection, furniture, or business shares? They may have to be liquidated by the estate, perhaps at a loss, to pay any existing tax liability. Life insurance proceeds may help to side-step probate, or estate administration tax, and can cover any estate liabilities that could impinge on bequests that you want to make to your loved ones.

Make sure that your gifts stay in your family. Deemed dispositions of capital assets at death occur even if an asset is willed directly to an heir. A capital gains tax liability remains in the deceased’s final tax return and reduces the value of the estate.

5 Methods to reduce taxes that will be due upon your death.

  1. Use the spousal (and disabled child) rollover provisions of RRSPs or RRIFs.
  2. Leave assets that have accrued capital gains to your spouse to defer tax.
  3. Leave assets without capital gains to other (non-spouse) family members.
  4. While you are alive, gradually sell assets having capital gains, to avoid dealing with the capital gains all at once in your estate.
  5. Purchase life insurance to cover capital gains taxation in the estate.

Taxes may be payable on gains.

Income-producing real estate, a second residence, or cottage, and any other assets left to surviving family members, such as shares of a business, of stocks and investment funds may face capital gains taxation.

You may also want to consider charitable donations to lessen taxes in the estate. Hire an estate planning lawyer and make sure your Will is updated and includes your estate planning directives.

TFSAs can help transfer money to your heirs. 

Money accumulated in a TFSA does not attract taxes at the time of death. If you want to create increased transferable after-tax wealth, consider moving money into TFSAs from non-registered investment accounts. Note: It is important to get an Advisor’s guidance, and perhaps an accountant to implement this in a careful tax plan.

Be careful, though to also consider taxable implications when considering selling non-registered assets. Ask your tax advisor if you will be triggering a  taxable gain? Possibly utilize TFSAs to their maximum potential, and monitor the comparative tax impact of transferring wealth from RRSPs/RRIFs to heirs of the estate.

What options does Buy-Sell Insurance give business owners?


When a co-owner/partner dies, the surviving business owners usually have five options in dealing with the deceased owner’s business interest:

1.   Buy-out the heirs of the partner with Life Insurance proceeds: This is usually the most preferred option. After all, the surviving owners/partners know how to run their business. It usually makes sense to buy out the heirs who are not engaged in or lack expertise in the business and carry on business from there.

2.  Keep the heirs in the business.  This would only be advisable if the heir was actually involved in the business for some time, or has skills that can advance the cause and profitability of the business.

3.  Take on an outsider who purchases the deceased’s business interest. A good buy-sell agreement can circumvent the need to have an outsider buy into your business if that arrangement would harm the current business partnership or the business. In some cases an outsider may already have an investment in, have expertise in, or a common business goal with your company that would mutually benefit everyone in the business. In this case, advance planning could allow such an individual to be part of buying side of the buy-sell agreement. The same individual may need to be a beneficiary on the insured lives of all the partners, in tandem with being written into the agreement.

4.  Selling to the heirs may be an option. This may be an option when some of the heirs are involved and successful in the same line of business with primary senior family members of the earlier generation who began your business. In this case the considered heirs, should receive funding from the proceeds of a well-planned fund to cover capital gains taxes, and fund operations, and pay for the owners shares.

5.  Liquidate the business or sell it to a third party. If this is the main goal, it is wise to involve discussions with the potential buyer long before one dies. If the business is large you may need to hire a firm that specializes in valuing and selling businesses. It is wise to estimate your capital gains exposure and cover any tax liabilities, as well as redeem business debts with the proceeds of life insurance which can be paid out tax-free.

In most cases, option #1 offers the business owners the best choice, with a small expenditure to buy life insurance that makes a payment to heirs with the use of a buy-sell agreement.

Can life insurance collateralize business bank debt?

How banks view lending money to business owners.

Banks follow established rules, which include asking a business owner to collateralize a loan, not just with business assets, but also with personally owned assets, such as a principal residence and cottage. Collateralization can include requesting a spouse’s co-owned assets to be collateralized, even if the business is incorporated.

Add to that a possible collateralization of any assets of a partner or adult child (and their spouses) who also share in ownership. Small business owners can lose their shirts if they default on a loan.

What if an owner dies? It is unwise to assume that a good relationship with the bank will continue if the heir of a small business, or a partner, is not in favour with the bank manager. Bank managers can change or apply strict policies while reassessing leniency shown to previous owners or administrators.

Eliminate any doubt in a family business, such as a farm, by insuring the oldest owners and succeeding generations using joint-first-to-die policies or individual life insurance policies. In the case of a non-family business, each owner/partner should be insured to cover the company’s debt. When the life insured dies, the tax-free life insurance proceeds can be used to pay back loans and, essentially, win back ownership and discharge any liens of personally owned assets.

What if there is a critical illness? For the same reason, small business owners should consider purchasing a critical illness (CI) insurance policy on each of the principal business owners and key persons. CI insurance could pay off a considerable bank debt if one were to experience a major illness such as a heart attack or stroke. One could end up incapacitated and may need to be bought out by a partner or an heir (there should be a buy-sell agreement in place). The risk of a loan being called increases when an owner-manager is sick and the bank manager loses confidence in the stabilising influence of that owner.

How can I reduce Probate or Estate Administration fees?


After the death of an individual, every estate must file a final (or ‘terminal’) tax return. All assets are deemed to disposed of at the time of passing, and this can trigger probate fees and other expenses.

A certificate of appointment (“Probate”) or Estate Administration Tax (EAT) is not always necessary to actualize the transfer of certain assets. Much depends on how the asset is held during one’s lifetime, and the value of the asset transferred.  Some institutions will not require probate for assets under a certain amount.  Concerning jointly-owned real property, and bank or investment accounts, these assets will pass to the surviving joint tenant by right of survivorship.  In cases where joint ownership of assets is considered for estate planning purposes, it would be prudent to obtain legal advice.

Life Insurers offer life insurance policies, segregated funds, and term funds, which may designate one or more primary beneficiaries, and further contingent (secondary) beneficiaries, allowing probate/EAT to be circumvented entirely, enabling direct access to those funds without joint ownership or survivorship of a joint tenant. Segregated funds and term funds are classified as deferred annuity policies, and as such, these assets can help lessen the overall fees charged on your estate. Monies pass privately and directly to your beneficiaries, outside of your estate and the probate process.

Concerns for Estate Planning

In Ontario, Probate fees were the forerunner of the new Estate Administration Tax (EAT), which is to shift to the Minister of Revenue. An Executor/Trustee will now have to file a detailed summary of assets that are distributable under the will. The Ministry reserves the right to take up to 4 years to assess, or the right to reassess, making the Executor/Trustees responsible for that reassessment.  Executors and beneficiaries may face liabilities if estate assets distribute before assessment or reassessment.  How does an Executor reclaim assets already distributed?

Assessment powers are not minor With the introduction of the estate administration tax (EAT), the government has given the Minister of Revenue audit and verification powers patterned after the federal Income Tax Act, thus giving the Minister of Revenue the right to assess an estate in respect of its EAT liability.

Estate trustees may be personally liable for the claims of creditors that cannot be paid as a result of an improper estate distribution. It will be an offence for an estate trustee to fail to make the required filing with the Minister of Revenue or where anyone makes, or assists in making, a false or misleading or omitted fact in connection with the estate trustee’s filing. Because offences are punishable by fine, imprisonment or by both, errors and omission insurance may be needed by executors handling larger estates.

Potential Legal Issues for Estate Trustees and Executors
Imagine if you are a personally chosen friend of a deceased person with $1.5 million in assets, who previously selected you as Executor/Trustee of his or her estate. Though duty-bound, you may feel that the risk is now very high if an error occurs. Consequently, you may want to off-load the potential liability to a professional accountant and lawyer to present all the documentation for EAT.

Consider that the costs of such a transfer of liability could rise to the maximum of 6% per professional (two professionals would mean 2 x 6%) of the value of the Estate. This could bring the total cost of dealing with EAT to a maximum of 13.5% of the estate value. In the above case, fees could cost upwards of $202,500.

Segregated and Term funds may offer investors an edge over other investment products in the province of Ontario when it comes to planning someone’s Estate. Segregated and Term funds also offer estate privacy of the distribution of money under the insurance act.

Note: Not applicable in Québec as notarial wills do not need to be probated by the court and, for holograph wills and wills made in the presence of witnesses, probate fees are minimal.


How do I protect the finances of the Successor of my Business?


Here are ways to protect your successor financially.

  • Allow the potential successor to get involved in managing important team projects. Try to increase the successor’s financial insights and his or her general responsibilities over time. Allow independence while ensuring that the right professionals assist the successor such as a good accountant and insurance agent.
  • Consider visiting other family businesses that have transferred their business through continuity planning.
  • Establish mentors and advisors for the successor. Consider setting up a board of directors if one is not in place. Implement leadership training programs.
We do not suddenly become what we do not cooperate in becoming.— William J. Bennett

Protect your assets during Succession in the following ways:

  • Cover your key persons Use life and disability insurance to cover the cost of replacing an owner, successor, contingent successor, or a key executive in the event of death or disability.
  • Ensure debt redemption Life insurance proceeds can pay off bank loans and other liabilities—paid at the time of the owner’s death. Also, consider critical illness insurance, which would pay up to $2,000,000 if the proprietor were to become critically ill.
  • Provide income replacement insurance (Disability insurance) benefits can provide income to an owner, successor, or key executive if disabled over certain periods of time. The income paid as a benefit to a disabled insured places less payroll burden on the company.
  • Fund a buy-sell agreement Life and disability insurance proceeds can fund a buy-out upon death or disability, where there are two or more owners in business (effective for current owners or succeeding generations).
  • Fund a stock redemption Where other members of the family own stock, you can buy life insurance on the owner, and make the successor the beneficiary. This will provide cash upon the owner’s death to allow the successor to buy the stock of say, sisters or brothers, based on a pre-determined formula related to equalizing the estate.
  • Fund capital gains tax liabilities Where large capital gains will impair the company or reduce personal assets, or disallow a bequest of a cottage or other asset, use a permanent life insurance product, designed to pay off all capital gains liabilities.
  • Create capital to equalize your estate Where one child will inherit the company, life insurance can be purchased on the owner and/or spouse, to pay the non-involved children a tax-free cash benefit in predetermined amounts, clear of probate. Avoiding resentment, you can inform these children that they will be treated fairly in the overall estate.
Let him who would move the whole world, first move himself. — Socrates

Maintain relationships during succession

  • Keep your banker informed What would your banker do if something happened to your firm’s current owner? Who else knows of the loans or the true financial status of the company? Introduce your successor (and the succession plan) to your banker and go over all the liabilities of the company. Reveal to he banker your life insurance planning that can offset liabilities in the balance sheet.
  • Sustain client relationships Introduce your successor early on, to your key clients. Perhaps host client appreciation events.
  • Harmonize the successor with the constituency The key players will help the company survive, including key suppliers; influential family within and without; shareholders whom you hope will seek minimal dividends in lieu of future growth; employees, especially those holding company stock; and the key executives.
  •  Diversify sources of retirement income Keep your retirement investments separate from your business Avoid investing all of your profits into the business with disregard to developing your own independent retirement resources. Thus, you will not need to rely on the company to create an ongoing retirement income, though you may indeed receive dividends and income from the business. Consider purchasing segregated funds, separating your personal assets from the company, while reducing exposure to creditors.
  • Move towards financial independence of your business Though you leave a legacy to your successor(s), you can ensure that the legacy will have sufficient funds to survive during and after the succession. Drawing from your retirement savings can reduce the need to depend on business income (or dividends).


What is a Power of Attorney (POA)?


If you were to have a stroke, heart attack, or serious operation—a disability to the degree you could not take care of your own affairs, who would take over? What if this was the last day that could make a mindful decision, on your own behalf?

You transfer directorial powers over your affairs to a Power of Attorney 

In such a situation, a Power of Attorney (POA) allows people you trust to manage prescribed affairs of your life.

Without a POA, your family though ready to pay your bills, and help manage your bank account and your investments, for example, may need special court approval to act for you. They could be forced to face a bureaucratic nightmare just to acquire authority to pay your bills (from your provincial public trustee).

• Clarity can be defined A POA leaves no room for misunderstanding the range of authority over your assets. You may need to set restrictive clauses in a POA that addresses your unique concerns.

• You will give up the powers of your signature The POA relinquishes the power of your signature and all the authority associated with it. Unless it states otherwise, a POA may be used by the attorney immediately upon signing.

• It must be witnessed Improper witnessing annuls the legal completion and sets the POA up for contention. Thus make sure the document is witnessed properly.

• Be careful of restrictions you may not want included Some broad form POAs include optional clauses that are often left included, whereas they may not be applicable. These may include restrictions on the attorney that you may not want to impose.

• You may want to restrict beneficiary changes If you want the attorney to have power over changes of beneficiaries to life insurance or investment assets, make that clear. If not, clearly restrict the right to change beneficiaries.

A warning which may or may not apply to you

Unfortunately, an attorney once authorized with your directive powers could feel it is their privilege to become an “empowered benefactor” of your (you, the donor’s) estate once they lose capacity. Therefore, it is wise to have a lawyer articulately document your specific wishes in your Power of Attorney documentation.

To empower and entrust another with your own authority, may be the last time you have the healthy capacity to make a responsible decision on your own behalf; so make it carefully.

Where there is significant wealth involved, consider a POA designed specifically to give powers to assist in the governing of your financial affairs.





Business plans must include retirement planning


Many business owners focus on their business and forget to seriously invest for their own retirement.

The Retirement myth of the Entrepreneur A majority of business owners believe their company will provide investment capital when sold, or if passed on to the next generation, a salary or dividend payments. For some, their personal financial stability is riding on the future success of the company.

Make hay while the sun shines Don’t be overly optimistic, that your company will succeed and/or create a good revenue forever. When a business represents the major value of an estate, planning becomes necessary. You may make hay while the sun shines, but be sure to stack a lot of it away for future use.

Many are not convinced that they need to plan their estate or the succession of their business. 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
  • RRSPSs/RRIFs (taxed when both spouses die)
  • TFSAs
  • Non-registered investments

We are all aging despite our business successes Consider taking 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, and key-person insurance.

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 may be payable in your estate.

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.

Why is succession planning integral for business owners?

Getting into business is a lot easier than getting out. Many successful family businesses have accrued capital gains in the millions. The tax payable is so high that the business cannot afford the liability once the owner dies at least without liquidating.

One way to cover the tax liability is to save for it. The problem arises if the owner dies too soon, or the money gets used for an emergency or a new opportunity, or if the savings goal is impossible for the company to achieve.

A business owner’s retirement may depend on an estate plan.

Many business owners base their personal financial stability 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.

Find out what your tax liability will be. Despite the financial importance of their business, most 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.

Succession PlanningFrequently review your capital gains tax liability. In some cases, the payment of relatively small life insurance premiums can entirely solve the estate’s future capital gains tax problems, and/or generate capital to replace the tax that will be payable on your RRSPs when both spouses die.

When you buy life insurance it immediately covers the entire estimated liability risk, which is due. The benefit is paid upon the owner’s death (or the death of a surviving spouse).

Put succession planning on your agenda. Consider taking the time to do some succession training when you are active in the business, passing on what you know, while unifying current action with your estate plan. Sometimes successful business owners, while waiting for the perfect person to take over, run out of time.

Determine who will take over the company.  If you are a family member, an employee, or a competitor, you will need to begin negotiating with your successor(s). Income from a good succession plan may nicely increase your retirement income. Therefore, it is good to know where it will come from.

Keep your legal documents current. Revise or complete both your will and power of attorney. Review your personal and/or corporate-owned life insurance, and disability coverage.

Establish or update your buy-sell agreement. Make sure your buy-sell and key-person agreements and applicable life insurance, is current and sufficient to cover your succession plans.

Other uses of new business capital offered by life insurance. A sole owner may buy enough life insurance to add capital to offer additional financial stability where a wife, son, or daughter goes through the transition to actually run the business. Insurance can also eliminate company debt to give a succeeding son or daughter a fresh start. Finally, it can fairly equalize the division of your estate among all of your heirs.

How can I empower the process of Business Succession?

Here is how you can empower the process of Business Succession


  • Establish appropriate forums Family retreats and regular meetings can allow the family to discuss the issues that will promote the continuation of a profitable company.
  • Develop teams and design tasks Select the most promising successor candidates to test their mettle. Include all the constituent players: the owner(s) and spouse(s); the owner’s children (including nieces or nephews) who are involved in the business or are shareholders; key executives; and once the successor is chosen, the following professionals:
  • Corporate tax accountant To value the business and assess capital gains tax liability; and to recognize if an estate freeze makes sense. Have the company financials been explained to the successor?
  • Corporate lawyer To install buy-sell and share redemption agreements, to advise all parties of various legal risks, and assess all historic agreements to see if they need to be changed in light of the succession.
  • Succession consultant These specialists can consult and quarterback the sessions through the entire planning process, keeping it on track.
  • Insurance specialist There are various insurance solutions to mitigate succession planning risk.
There can be no real communication without a reciprocity of ideas.— Ernest Holmes

Select the right successor

  • Look for leadership skills The selection of the right successor is vital to the continuation of a successful company. The most suitable candidate will probably have leadership potential made obvious by willing and capable followers; care for employees; decisive self-confidence; ability to plan strategy and deliver on promises; amiable interaction with peers and colleagues; integrity; ability to inspire others with a vision; skilled at listening to others and can resolve conflicts; and holds others accountable, encouraging them to meet the company’s objectives.
Man does not simply exist, but always decides what his existence will be, what he will become in the next moment. — Viktor Frankl

Ask yourself “Whose destiny is it?”

  • Understand limiting paradigms Some parents believe that the business was developed for a certain child. But perhaps this child has his/her own alternative career-dream. If a son or daughter is bribed or cajoled into becoming a successor, hard feelings may arise later when the realization of lost opportunity to be an artist, a doctor, or a zoologist sets in.

From the beginning, try to find a contingent successor, as no one knows what the future may hold—change is part of life.





How can Universal Life help business-related estate planning?

Universal Life strategies can help business related estate planning in these ways:

  • Protect your business assets.

If you own a business and die, will your partners be able to pay for your share of the company? Why not insure your life, and the lives of the other partners and key employees?


The death benefit of the policy can create immediate capital to take the business through the transition of losing one of its leaders, while allowing surviving partners to buy out the outstanding interests (payout share ownership of the deceased partner, using a buy-sell agreement), pay off creditors or in the case of the key person, provide head-hunting monies to replace him or her.

  • Business owners can protect spouses.

If a spouse who was not active in your company survives, chances are he or she would rather be paid cash for the value of their shares and leave the running of the business to the surviving children or partners. It is difficult for executors to make sure that a wife, for example, is paid enough money to live on if she continues to share ownership.

In some cases, surviving spouses constantly need to be updated on the business’s finances, and performance and all too often have issues getting their due income. An insurance policy could rid the executors of the responsibility of ensuring that the company’s remaining owners pay the spouse. The insurance benefit could be paid directly to the spouse or flow through the business or the business partners as per a pre-established buy-sell agreement.

  • Who is the tax-advantaged plan designed for?

As with any life insurance policy, it is designed to pay beneficiaries a tax-free benefit upon the policy owner’s death. That is the main reason to buy such a life insurance policy.

The taxation scenario is a great secondary benefit, but the main purpose should be to ensure that needs are covered by the life insurance component.