When’s the right time to start planning?

Succession’s family patriarch Logan Roy made his first mistake by holding off on succession planning until retirement was already on the horizon.

“Obviously it's best to have something in place from the get-go,” says Jane Martin, an estate lawyer with Wilson Vukelich LLP in Markham, Ont.

She says business owners need to ask themselves: “If something happened to me today, would the business be able to keep running?”

If the answer is no, “it's a really good time to sit down with a financial planner and maybe a tax advisor, but definitely with an estate planner.”

At the very least, without a succession plan, your heirs could find themselves facing a major family feud, or a tax bill that is larger than it needs to be — or worse yet, a combination of the two.

Fair is not the same as equal

When dividing up an estate, you don’t necessarily have to make things equal to make them fair, experts say. For example, some children may have invested their own time and money in growing the family business and deserve to inherit it. Other families may have children with special needs who’ll need financial support for the rest of their lives.

But making sure you strike the right balance in your inheritance means keeping up with your finances. And the key, Martin says, is having inheritance and succession conversations upfront.

“Regardless of why there might be different treatment of your children in your estate plan, when it comes as a surprise after you die, it can lead to beyond just hurt feelings — it can lead to court battles,” says Martin.

The Litts’ case, Grewal v. Litt, made its way to the Supreme Court of British Columbia in 2019. The judge ultimately sided with the sisters, arguing the parents had a moral obligation to their daughters, and ended up dividing the estate more equally between the siblings.

Though it worked out well financially for the Litts’ daughters, cases like this can drive a wedge into families, sometimes permanently.

What was fair then might not be fair now

Jeff Halpern, a business succession advisor with TD Wealth in Toronto, deals with questions of fairness in inheritance every day. Recently, he helped a family with one son and two daughters. The son was slated to inherit the family business while the daughters would be left cash.

But the business had risen so much in value that the taxes his estate would have to pay when he died would significantly reduce how much the daughters stood to inherit.

While the will was fair when it was originally drawn up, Halpern says the increased value of the business meant the son’s inheritance would be about five times more than what either of his sisters stood to receive.

So Halpern helped them rebalance their plan. By separating the company’s real estate assets and placing them in a separate, new corporation in which the daughters were shareholders, the parents were able to “top up” their daughters’ inheritance.

Communication is essential

Martin says good communication is the most powerful tool to manage what could potentially become an awkward — or litigious — situation once you’re gone. And beyond making family dinners tense, it can also take a toll on the legacy you hope to leave behind.

“The worst thing is to have it blow up the family and possibly blow up the business,” says Martin.

And Halpern adds that you should also avoid making any assumptions about what everyone will want.

Some people may be surprised by what it is their children actually want from them, says Martin.

“It's fascinating to me how people define fair,” he says. “Sometimes it's about everyone getting an equal share. And sometimes it's more about having a say in family mementos or those less valuable things.”

When it comes time to plan, the best thing you can do for both your family and your business is be open and clear throughout the process and strive for fairness even if that doesn’t mean equality.

“Having a seat at the table and feeling that your voice is heard can be more important than having equal amounts,” Martin says.

About the Author

Sigrid Forberg

Sigrid Forberg

Reporter

Sigrid is a reporter with MoneyWise. Before joining the team, she worked for a B2B publication in the hardware and home improvement industry and ran an internal employee magazine for the federal government. As a graduate of the Carleton University Journalism program, she takes pride in telling informative, engaging and compelling stories.

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