CANADA Law and Practice Contributed by: Ian Hull, Suzana Popovic-Montag and Nick Esterbauer, Hull & Hull LLP
trustee and beneficiaries under certain terms, includ - ing the termination of the trust. Changes to the market or other factors may render the continued administration of an irrevocable trust in accordance with the terms of the trust instrument irrational. In some circumstances, it will be possible to vary the terms of an irrevocable trust, but the consent of all trustees and beneficiaries and/or a court order may be required. To reduce the possibility of conflict related to family business succession planning, it is advisable to clearly communicate relevant intentions with regard to the business to business partners and family members. Business owners may also wish to consider business succession planning in order to limit disruptions to the business that may result from retirement, incapacity or death. Insurance is the most common means of asset pro - tection in Canada. Life and/or disability insurance can be used to satisfy the liabilities (including tax liabilities) of a business in the event of the incapacity or death of a business owner, thereby facilitating the succession of a business. 4. Family Business Planning 4.1 Asset Protection Inattention to asset protection as part of the estate planning process may frustrate a succession plan. If the tax liabilities on the deemed disposition of the business interest exceed the liquid assets available to an estate, the succession of the business may not be possible, and its dissolution may be required. A number of factors should be considered in deter - mining the extent of insurance required, including: • whether there is an intention for the owner’s inter - est to be bought out in the event of their death; • whether insurance is intended to benefit beneficiar - ies who are not receiving an interest in the busi - ness (and who may wish to otherwise challenge the gift of the company that has the effect of disinherit - ing them); and
• whether the business will require additional paid help following incapacity or death. A number of options exist with regard to disability or life insurance policies intended to protect the assets of a business. Any of the surviving family members, the deceased’s estate, the company itself or a surviving shareholder can be the beneficiaries of such a policy. The insurance policy can be owned by the business owner or by the corporation itself. 4.2 Succession Planning The individual managing a business should create an alternative signing authority on business accounts to ensure the business can continue to operate during emergencies. Using the example of a law firm, the managing partner should provide a licensed lawyer or paralegal with signing authority for the firm’s bank accounts, including its trust account, to ensure that client and firm resources are not inaccessible owing to the unexpected absence of the partner. It is also important to keep clear records and files, in order to ease the transition in cases of emergency or planned succession. For smaller businesses, a buyout between an incom - ing owner and the original owner may be advisable. A buyout that is planned over an extended period of time may have fewer tax consequences than an immediate buyout. The use of a promissory note pay - able over a number of years may also limit the taxable capital gain resulting from the sale of a business in a given year. Starting in 2024, the tax consequences will be further reduced for genuine intergenerational busi - ness transfers that are either immediate (made within 36 months) or gradual (made over five to ten years). If the family business is a partnership, a partnership agreement may specify how the business will be divid - ed upon the dissolution of the partnership or upon the retirement, incapacity or death of one partner. If the business is operated through a corporation, a share - holders’ agreement may accomplish the same objec - tives. Where no such agreement exists, the terms of the Canada Business Corporations Act, RSC 1985, c C-44 (or provincial equivalents) and provincial partner - ship legislation may apply instead.
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