As an Edmonton financial planner, I often see that estate planning for business owners is more complicated when they are incorporated. A few years ago, I met a business owner whom I’ll call Carl. He was in his early 60s when he reached out to me for help with his finances. Carl was the successful owner of an incorporated business with a net worth well over $6 million. He assumed that when he passed, his business would just “roll over” to his kids. It’s a fair assumption, and something that many business owners believe.

When I modelled the scenario for him, the projected tax upon his death was approximately $1.8 million. Carl was shocked and surprised at how high the tax bill would be. He didn’t want to burden his children with such a high cost and a huge decision of what to do. Carl told me: “I thought the corporation protected me from that.” 

Unfortunately, it doesn’t. 

The problem is that when the owner of a private company passes, the shares that Carl owned are deemed to be disposed of at fair market value. So, when there’s growth in the company, there’s tax involved, too. Another significant issue was that Carl didn’t have enough liquidity inside the corporation to fund that tax bill without selling assets. 

Something that I’ve noticed in my decades of working with business owners is that there’s still a lot about tax liability that they just don’t understand. It’s an understandably complicated landscape. And, unfortunately, major life events can happen at the worst possible times, making business owners and their successors vulnerable if they have gaps in their knowledge. 

There are several things that could have happened to Carl once he made this discovery. He could have panicked. He could have sold shares in his company, thinking that’s what he needed to do to protect his family from future burdens. But, with my assistance, Carl didn’t do either of those things.

Instead, we structured liquidity intentionally. We used advanced modelling to determine the best course of action for Carl and his corporation that didn’t compromise his years of work and the financial legacy he wanted to leave his family. If we hadn’t done that modelling in advance of a major life event, his family would have been forced to make decisions under pressure. 

Estate planning for business owners is more complicated for those who are incorporated. If they have shares in the company, a spouse, children or other family members involved, planning is essential. If they have the intention to sell or transition the business to someone else, they need a plan in place. This makes it a smooth transition for everyone involved. It’s about continuity, tax, control and protecting family relationships. 

Company owners can be reluctant to get their families involved in estate planning. They’re worried it will cause a lot of conflict. But, in reality, I’ve seen a lot of clients and their families enjoy the process. Parents and children are all in a boardroom together. We’re projecting the future and realizing the potentials, and that’s something that younger generations can get behind. 

Even without children in the picture, estate planning for business owners can become complicated quickly when a company has multiple partners. One recent client, Davis, co-owned a profitable professional corporation on a 50/50 basis with his business partner, Raj. When Raj passed away unexpectedly, his 50% ownership transferred to his spouse, leaving Davis with the other half.

Unfortunately, Davis and Raj’s spouse did not want to run the business together. The company needed stability, and Davis needed control. But instead of a smooth transition, Raj’s death set off a negotiation.

The business suffered operational costs and Raj’s spouse, already in mourning, didn’t want or need the burden of making important decisions about the business.

I wish I could have met Raj and Davis when they were still in partnership together. I would have helped them develop a properly structured buy-sell agreement that would have defined the company’s valuation.

With a plan in place, we could have created liquidity upon Raj or Davis’s passing, which would have protected both families and cushioned the business from emotions so that it could continue operating at its best. 

That’s the real value of estate planning for business owners. It addresses taxes, protects continuity, preserves stability, and helps ensure that when life changes suddenly, the people left behind are supported by a plan instead of burdened by uncertainty.