Estate planning

How BC law treats it

Wills in British Columbia are governed by the Wills, Estates and Succession Act, SBC 2009, c 13 (WESA). WESA sets formal requirements for making a will, gives the court power to cure some defects, and allows a spouse or child to apply to vary a will that does not make adequate provision for them. Many business owners use more than one will, so private company shares can pass outside probate. An enduring power of attorney under the Power of Attorney Act, RSBC 1996, c 370 lets a chosen person manage financial affairs, including voting shares, if the owner loses capacity. Tax drives much of the planning. Under section 70(5) of the Income Tax Act, RSC 1985, c 1 (5th Supp), a person is deemed to dispose of capital property at fair market value immediately before death, which can create a large capital gain on private company shares. Transfers to a spouse or spousal trust can defer that tax. An estate freeze, often carried out under section 86, exchanges the owner's growth shares for fixed value preferred shares so future growth accrues to new shares held by children or a family trust. Corporate documents matter as much as the will. A shareholders agreement should say what happens to a shareholder's shares on death or incapacity, such as a buy-sell funded by life insurance. Articles under the Business Corporations Act, SBC 2002, c 57 (BCBCA) may restrict share transfers, and family trusts carry their own tax rules, including the 21 year deemed disposition.

What it means for your business

For a BC business owner, the company is often the largest asset. Without planning, death or incapacity can freeze decision-making, trigger a large tax bill and leave family members fighting with co-owners. A coordinated plan of wills, powers of attorney, shareholders agreement terms and, where it makes sense, an estate freeze lets the business keep running and moves value to the next generation tax efficiently. Example: A Vancouver restaurant group founder completes an estate freeze into a family trust, signs a secondary will covering her private company shares, and updates the shareholders agreement so her partner can buy her shares from the estate using insurance proceeds.

Risks and common mistakes

Having a will but no enduring power of attorney, so no one can vote the owner's shares during incapacity. Ignoring the deemed disposition at death and the tax it creates on private company shares. Signing a shareholders agreement that is silent on death or incapacity of a shareholder. Doing an estate freeze without considering the family trust's 21 year deemed disposition. Failing to update the plan after a sale, marriage, separation or new partner.