One kid wants the business. One doesn't. How do you keep it fair?
Handing down a business is one of the hardest parts of owning one. Equal and fair aren't always the same thing, and the tax bill at death can force decisions nobody wants. Two tools help: evening out the inheritance, and freezing the value of your shares.
Making it fair: estate equalization
Say the business is most of what you own. One child works in it and wants it. The other has their own life. Leave the business to one, and the other gets very little. Split it between them, and one child is now co-owner of a company they want nothing to do with.
Life insurance can create a separate pot of money for the child who isn't taking over. Each gets a fair share, and the business stays in the right hands.
Stopping the tax bill from growing: an estate freeze
When you die, CRA treats your shares as if they were sold at that day's value, and the growth gets taxed. As the business grows, so does that bill.
An estate freeze, set up by your accountant and lawyer, locks in today's value of your shares. Future growth goes to the next generation, often through new shares or a family trust. Your tax bill at death stays largely fixed at today's value.
Life insurance can then be sized to pay that bill, so your family isn't forced to sell anything to pay CRA.
How we work through it
- 1We map out the family: who's in the business, who isn't, and what fair means to you.
- 2Your accountant estimates the tax bill at death, now and after a freeze.
- 3Your lawyer handles the freeze, the wills and the shareholder agreement.
- 4I find coverage to fill the gap, often a policy that pays when the second spouse dies, which is when the bill usually comes due.
Is this a fit?
Usually a good fit
- The business is a big part of your net worth
- Not all of your kids want the business
- The business is still growing
Probably different planning
- You plan to sell to an outside buyer. That's a great conversation too, just a different one.
The honest fine print
- A freeze is a legal and tax project, not an insurance product. It has real costs, and family trusts come with their own rules and deadlines.
- Equal isn't always fair. These are family conversations first and money conversations second.
- Once a freeze is done, undoing it isn't simple.
Questions to take to your accountant and lawyer
- 1.What would my estate's tax bill be today, and in 10 years if the business keeps growing?
- 2.Does a freeze make sense now, or is it too early?
- 3.How do my will and shareholder agreement handle the business today?
FAQ
Do I give up control if I freeze?
Not usually. A freeze can be set up so you keep control while the growth goes to the next generation. Your lawyer handles that part.
What if my kids are still young?
That can be a good time to plan, because less value is locked in and more growth is still ahead. Your accountant and lawyer will tell you what fits.