There’s nothing that blurs the lines between personal and corporate property quite like a family business.
And when the founders die, leaving behind their feuding children, it only complicates matters more, as a recent court decision shows.
According to the Appeal Court ruling, the seeds of the dispute were sown in the 1960s, when the married couple at the heart of the case built two marinas on a piece of land in East Gwillimbury, Ont.
When the husband died, he left half of the business to his son – one of the couple’s five children. Over the next couple of decades, the mother and son lived and worked together, but fell out a short time before her death.
As a result, he was disinherited from the mother’s estate and his brother ended up taking over the marina business. A mishmash of deals then sent large sums of money flowing between the ousted son, his brother, the rest of their siblings and the mother’s estate.
At the same time, the administration of the mother’s estate fell into disarray as the siblings disagreed over how to characterize the various payments and they ended up in court
The Court of Appeal ultimately upheld the trial judge’s decision ordering the brother to pay occupation rent for treating the estate property as his own while running the marina business, and largely agreed with her classification of the payments and loans between the parties.
If you don’t want your own family enterprise to interfere with your estate, it’s important to properly document and account for any business arrangements with heirs, including the treatment of loans and particular assets when drafting your will.
It’s also a good time to think about getting a succession plan for the business in place, so that it can be fully integrated with your broader estate plan.
Succession planning is not something that can be rushed, so the sooner you get started, the better. Finding or training up the right team to take over is no easy task, especially when there are complicated family or sibling dynamics at play.
Owners often make assumptions about both the willingness and ability of their children or other family members to take over, which may or may not turn out to be correct.
In recent years, changes to the Income Tax Act have made it more attractive for business owners to keep the enterprise in the family by executing a share transfer to their children or grandchildren.
For example, a 2021 law removed the effective tax penalty that once applied to intergenerational transfers involving small businesses, family farms or fishing corporations, allowing owners to access the lifetime capital gains exemption that was always available when selling up to an unrelated third party.
The more complex your assets, the more work it will take to maximize the tax efficiency of your estate. But with the assistance of a good lawyer and accountant, you can put together an estate plan perfectly tailored to your individual situation.
Disclaimer: The content on this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this website are advised to seek specific legal advice by contacting members of Laredo Law (or their own legal counsel) regarding any specific legal issues.
