In this three-part series, Lott and Company outlines the why, what, how and who around the essentials of creating an estate plan that effectively preserves, manages and distributes your personal and business assets after death.
If you have not yet reviewed part one, we encourage you to visit www.lottaccounting.ca where we covered why an estate plan is essential and what strategies are available to meet your personal and business goals.
In this second part we will cover how to lay the foundation to support an effective estate plan.
How to lay the foundation for an effective estate plan
Ensure Wills and Power of Attorneys (POA) are in place and up to date.
- A properly drafted will ensures the business transitions smoothly and ends up in the right hands
- Granting a power of attorney enables a trusted individual of your choosing to make financial decisions if you are no longer able
Appoint a competent executor/trustee
- Should be familiar with the business and have the time and expertise to manage the affairs of the estate
- Should be objective and capable of dealing with potential conflicts of interest among relevant parties
- Executor should be enabled to hire the appropriate advisors when required
- The will should address fees paid to the executor and advisors
Develop a survivor’s business plan
- Although not a legal requirement, a written business plan provides direction to survivors
- Should outline steps that need to be taken to preserve the value of the business if the owner dies or becomes physically or mentally disabled
- Outline company goals, critical success factors, key employees and action plan or action items
- Include net worth statement that lists all assets and liabilities to ensure nothing is overlooked
- Indicate potential liabilities (tax etc)
Ensure adequate life and disability insurance
- Provides income for the family in the event of disability or death of the owner
- Useful to pay taxes on large capital gains and other liabilities of the owner
- Need to review what funds are required to eliminate existing and potentially new liabilities and pay family living expenses
- Very important when the business assets make up a large portion of the estate and not all beneficiaries are involved in the business
Key Person Insurance
- Considered for key employees that are critical to the business and provides funds to reduce any corporate borrowings of the key employee or support the business through its transition to a new successor
In the upcoming final part of our Lott & Associates three-part Estate Planning series we will discuss how to ensure your family/benefactors are taken care of per your estate directives and who can assist you to ensure your goals are met.