Latest / Your Estate Matters / Episode 65 - How to Keep Your Company Thriving After You’re Gone with Michael Scott
Transcript
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</script><meta http-equiv="content-type" content="text/html; charset=UTF-8"><script nonce="_3iXAgk42NBCkJqLvPLdMQ">var DOCS_timing={}; DOCS_timing['pls']=new Date().getTime();</script><meta property="og:title" content="YEM Michael Scott Transcription"><meta property="og:type" content="article"><meta property="og:site_name" content="Google Docs"><meta property="og:url" content="https://docs.google.com/document/d/15NlMQQlzHovflbZ_1WQFk5ao6WH_cn9fLlyUAUviTXE/edit?usp=sharing&usp=embed_facebook"><meta property="og:image" content="https://lh7-us.googleusercontent.com/docs/AHkbwyIGnTJksBqZyT1pGQzh4fSK65dhSX769N4S4EsfkdzZEYnEjuzptJCnrkTm8hBJLEfG85KKsFZLHNbwMBUqEX-JF3CCM0XiRipseUqD_00CkmIt_to8=w1200-h630-p"><meta property="og:image:width" content="1200"><meta property="og:image:height" content="630"><meta property="og:description" content="Nicole 00:00:02 Hello and welcome to Your Estate Matters presented by Heritage Trust. Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it's estate related, we'll be talking about it. We're having the conversations today that will..."><meta name="google" content="notranslate"><meta name="viewport" content="width=device-width, user-scalable=no, initial-scale=1.0, minimum-scale=1.0, maximum-scale=1.0"><meta http-equiv="X-UA-Compatible" content="IE=edge;"><meta name="fragment" content="!"><meta name="referrer" content="origin"><title>YEM Michael Scott Transcription - Google Docs</title><link rel="shortcut icon" href="https://ssl.gstatic.com/docs/documents/images/docs-favicon-2026-v2.ico"><link rel="chrome-webstore-item" href="https://chrome.google.com/webstore/detail/apdfllckaahabafndbhieahigkjlhalf"><script nonce="_3iXAgk42NBCkJqLvPLdMQ">_docs_webfonts_fontFaces = null; _docs_webfonts_iframe_fontFaces = null;DOCS_timing['wpid']=new Date().getTime();</script><style 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Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it\u0027s estate related, we\u0027ll be talking about it. We\u0027re having the conversations today that will help Canadians protect their families, their assets and their legacies tomorrow. So, Michael, thank you so much for being with us.\n\nMichael 00:00:34 Thanks for having me.\n\nNicole 00:00:35 So we\u0027ve worked together a lot. You are a long term expert and someone that we rely on for advice. So we really appreciate you sharing all this wisdom with our listeners.\n\nMichael 00:00:44 I\u0027m happy to share. I\u0027m happy to help.\n\nNicole 00:00:46 So tell us, why is estate planning for a business owner different from estate planning with someone who has mostly personal assets?\n\nMichael 00:00:54 It adds a level of complexity. I would say an individual that owns a business has to address the business, and that involves their ownership stake in it. That might be through a private company, but it also involves addressing the succession of the business itself. And who\u0027s going to take control if that person passes away or becomes incapable.\n\nMichael 00:01:14 And how is that going to look? So it just adds a couple of levels of complexity and work that needs to be considered on how they\u0027re going to implement that plan.\n\nNicole 00:01:22 So tell us, what are the main building blocks of a good estate plan for a business owner?\n\nMichael 00:01:28 I would say at the very base level, a business owner, the same as everybody else, should have a will. They should have a power of attorney in place. The will would be there to address. If they pass away, then they have an executor appointed. The executor can then have some authority to gain access to the company through their voting shares to bring themselves in, or somebody else as a director who can then stand in the shoes of the deceased person to carry on management, and then the power of attorney to deal with it if that primary owner hasn\u0027t passed away, but they\u0027ve become incapable. And it\u0027s really the same thing. It\u0027s having somebody with the authority to sign, to bring in a new director so that they can sign on the voting shares that the business owner holds and bring in someone to then can have authority to deal with the business, though I would say that that\u0027s the base.\n\nMichael 00:02:19 And then it depends from there on the details of the business and the value and what the business owners objectives are. You know, if there\u0027s a lot of value there, then it might get into the tax planning side both provincially and federally. So on the provincial side, you know, in B.C. we have probate and probate fees. Probate fees is a 1.4% provincial tax, and it\u0027s calculated on assets that form part of your estate. So that would include shares of a business owner that they hold in their company or in their business. And those shares, the value of it will be reflective of whatever the value of the business is. So if it has a significant value, then now you\u0027re paying 1.4% as a provincial tax, effectively on that 1.4% or on the value of the business. There are ways to get around that. As you know, you\u0027re a state lawyer and a state lawyer as well. You can carve out the business or the corporate shares through a separate will, and that effectively allows those shares to be governed and administered by a separate executor through a separate will.\n\nMichael 00:03:19 And it bypasses probate and probate fees. So if there\u0027s a lot of value, we might look at that. You know, there are other ways to do it as well. If probate was a concern and if the people are over 65, then maybe they\u0027re looking at settling an alter ego or a joint spousal trust and moving the shares out of their estate so that they can bypass probate and govern through the trust instead. And that\u0027s more comprehensive planning. So it\u0027s not the base. It takes more time. And business owners are busy people. And so it can be difficult to implement that planning because it takes more time. So my approach for clients might be if they had a lot of value in their business, and we do have to be mindful of the tax planning, then I might suggest, “here, why don\u0027t we start with just getting a basic plan in place. Let\u0027s get your wills in place so that there\u0027s something there, and then we can, you know, revisit this more comprehensive planning as we\u0027re 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It\u0027s not overly time consuming to get a basic plan in place, and then we can focus on a bigger picture plan when time permits for them.\n\nNicole 00:04:18 Let\u0027s talk about that probate fee avoidance. Because if you are going to do two wills or you\u0027re going to do one of these sort of fancier alter ego or joint partner trusts, which you mentioned you can do if you\u0027re 65 or older, that is additional cost, additional administrative burden. How much value roughly do you think the business should have to warrant those additional fees and complexity?\n\nMichael 00:04:45 Right. Yeah, it\u0027s a good question. And it\u0027s certainly one that comes up. And I can\u0027t speak for the, you know, our industry as a whole because I think that all of us that work in this area would have different viewpoints on that. But generally for us or for me, I shouldn\u0027t even speak for everybody in my firm. I would say if somebody has north of 5 million in value inside a company interests, then that at least triggers for me to have the discussion with clients to say, hey, look, you got a lot of value there.\n\nMichael 00:05:15 There\u0027s going to be probate on this, and it\u0027s 1.4% on 5 million. So that\u0027s going to be, you know, close to 70 grand or in that range. There is this other thing we can do, which is the carve out through a separate will. It\u0027s going to cost you an extra cost to get it set up. But then there\u0027s your balance as you\u0027re saving a potential 70 grand and you\u0027re paying this to do it. So I would have the conversation then, but I wouldn\u0027t necessarily recommend it on those numbers where people have north of 10 million, then I\u0027m saying, you know, I think it might be a good idea to do this. There are other factors that come into play as well outside of just the numbers. So, you know, the most significant of which, in my view, would be the complexity of the administration itself. Because if you then have, you know, two wills set up and you have to have two separate executors acting on each will, that really adds levels of complexity to the administration of the estate, because now you\u0027ve got, you know, two separate people dealing with the administration, and they\u0027ve got to work together to an extent, because it\u0027s ultimately a just one estate.\n\nMichael 00:06:15 And, you know, they have to figure out a way to deal with the taxes and how the distributions and expenses are going to work. And where\u0027s their liquidity, you know, to pay those expenses in the short term? And where is there not liquidity? And there\u0027s just a lot of factors that come into play. And it can add a lot of expense, you know, professional expense on the administration. So I think there\u0027s a balance there as well. So sometimes even if you can save the probate fees, keeping it simple and paying the probate fees can still be a better result than bypassing probate. But adding that complexity for your family in succession.\n\nNicole 00:06:48 So let\u0027s talk about…you mentioned federal taxes as well. So as we know we don\u0027t have gift or estate tax like the US, but we do have capital gains. And when a business owner dies, they\u0027re deemed to have sold all their assets at fair market value. That can trigger a significant capital gains bill. What are some strategies that you recommend for business owners to mitigate that tax bill?\n\nMichael 00:07:12 The most common one that would come up would be carrying out an estate freeze.\n\nMichael 00:07:16 So I would have that conversation with clients where they have corporate interests. There\u0027s value in there. And as you said, you know, that value is going to be taxable as a capital gain. 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We can plan around that million dollars using that example. And then all the growth we can address at a later date. So you can run it through a family trust for 21 years and either shift it out to your kids or whoever your beneficiaries might be at that point, and then put the cap that additional capital gain accrual into their hands, so that it\u0027s effectively skips a generation on when it\u0027s going to become due and payable, or take it back, depending on what the circumstances are at the given time.\n\nNicole 00:08:44 If the kids agree to give it back.\n\nMichael 00:08:46 Yeah. If it\u0027s while it\u0027s in the family trust. Right. Just not giving it to the kids. Just take the shares back for yourself. Right. I\u0027d say the most common scenarios that that planning will come up. So one is where there\u0027s significant growth prospects. 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So can you talk about if there\u0027s other owners of like buy, sell or shareholders agreements and how those might work in terms of life insurance to deal with the death or incapacity of an owner.\n\nMichael 00:11:50 Yeah. Certainly another level of complexity added where it\u0027s not a sole practitioner or business. They\u0027ve got partners and yeah, I mean the typical set up to facilitate, you know, what happens with the business if one of those business partners passes away, is to have a shareholders agreement in place as a document to govern, what are the exit strategies? What happens if one of the business partners passes away? How is the business that interest going to be valued? Is the business going to buy back the or the company going to buy back the shares, or is the other shareholder going to buy the other one out? How are they going to fund that? Is it going to be a payment? You know, because maybe the business doesn\u0027t have liquidity. So is it going to be an installment payment program over a number of years, or is there going to be life insurance owned by the company on the lives of these business partners to create some liquidity, to carry out the buyout? And all of that stuff needs to be considered, and typically it\u0027s all governed through a shareholders agreement.\n\nNicole 00:12:54 And what about if a key business owner loses capacity or dies? Like what about key person insurance? Do you see that often?\n\nMichael 00:13:04 Yes, but I don\u0027t know as much about it. Like I don\u0027t know how it would work for incapacity. I have seen shareholders agreements that address that. Not on the insurance side, but more just on, like what happens if one of the business partners becomes incapable. You know, sometimes the shareholders agreement will say that at that stage that triggers a potential buyout where the other one because now that person can\u0027t really, you know, do the work. So the other is really left holding the bag and doing all the work. And they don\u0027t want to do it for the benefit of. If it\u0027s a 50/50 business partnership arrangement, they don\u0027t want to be doing 100% of the work and only getting paid 50% of the revenues. So yeah, I\u0027ve seen shareholders agreement that have had that as a trigger for a buyout option, but I don\u0027t know. Yeah. What\u0027s your experience on that?\n\nNicole 00:13:51 Oh I\u0027ve seen scenarios like that.\n\nNicole 00:13:53 And the other thing about shareholder agreements is it\u0027s not just death or disability. It can be like what happens if one of the owners becomes insolvent? What if one of them has a family law issue? What if they just stop getting along? Maybe you can talk to people. That can be things like shotgun arrangements, where a valuation is triggered, where one party can buy out the other. Can you talk about that?\n\nMichael 00:14:15 So for a shotgun, I got to think about this. So we\u0027re kind of creeping ever so slightly outside of my area of expertise. I have been involved in shareholders agreements, but I usually get to one of our corporate lawyers to deal with that. shotgun clause is if you\u0027ve got two business owners just using that example, sticking with that program, it\u0027s where one offers to the other to buy them out, and if the other does not agree to buy them out, then it forces them to buy out the other. So it\u0027s one way or the other. You\u0027re kind of putting all your cards on the table and saying, look, we\u0027re not carrying on as a business relationship anymore.\n\nMichael 00:14:48 Either I\u0027m buying you out or you\u0027re buying me out. I\u0027m pretty sure that you\u0027re right.\n\nNicole 00:14:52 Well, it depends how it\u0027s drafted, but it can often be a scenario where they reach some sort of impasse and or one of them gets assigned into bankruptcy. Or I think the idea is in terms of planning, like for small business owners, is, you know, you\u0027re struggling to just, you know, get the business off the ground. You know, you\u0027re struggling to make payroll. You know, costs are rising. We\u0027re in an inflationary environment. We\u0027ve got trade, you know, instability. And a lot of people are just focusing on survival. But I think proactive planning, whether it\u0027s certainly important in terms of an estate planning, like if somebody\u0027s going to die or be incapable, but also what if one of those other bad things happens, like insolvency or divorce or not getting along? I think the message we want people to know is proactive planning. 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I guess maybe we can explain that to small business owners that are just trying to survive the day to day right now.\n\nMichael 00:16:04 Yeah, it\u0027s tough because there\u0027s added complexity. It adds to the legal cost to get these plans set up. And sometimes that\u0027s a bit of a deterrent for people to proceed. Like that can be the, you know, the blocker for them. But then it goes back to, you know, at very minimum just put a basic plan together. Like if you don\u0027t want to pay ten grand to set up a more comprehensive plan, pay three grand to set up a basic plan at least. So then you\u0027ve got something in place because something is going to be better than nothing.\n\nNicole 00:16:29 And so by basic plan, what does that mean to you?\n\nMichael 00:16:31 Having a will and a power of attorney in place, at minimum. Yeah.\n\nNicole 00:16:35 Yeah. That\u0027s good. So what surprises families the most? Like, if there is a sudden incapacity or death when you\u0027ve got a business owning family, what do you see on the other side of that?\n\nMichael 00:16:46 It depends on the business.\n\nMichael 00:16:47 I mean, if the business owner passes away, in some cases, the family is well aware of the business and how it\u0027s owned. Sometimes they\u0027re involved, and in those circumstances it can be easier to deal with the succession of it. It can also be more complicated depending on, you know, how many kids there are and is there one involved and then the other ones are not? Or are all of them involved? And what are their expectations on what\u0027s going to happen with it, and are they all going to co-own it together? Or there are lots of questions that need to be unraveled and answered on the bigger picture succession of it. But in the more immediate case it\u0027s, you know, who has authority to step in to deal with the ongoing management. 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So proactive, ongoing partnership with a good lawyer and accountant can save a ton of money. So let\u0027s talk about keeping the business alive. So say somebody as they were a proprietor and are they self incorporated? The owners? The only director. The only shareholder? The only person with signing authority. What happens if they\u0027re on a plane to Hawaii and it doesn\u0027t make it? What happens the next morning?\n\nMichael 00:28:21 For a sole business owner? I mean, nobody has any immediate authority then to deal with and assuming that the business is owned through a company. In that circumstance, it depends on the business and maybe they have employees. So things, you know, in terms of the immediate next day, it will depend a little bit on how involved the business owner is and the actual operations, if they\u0027re a key person where they\u0027re actively involved.\n\nMichael 00:28:48 That can be problematic because, you know, the business operations, if they can\u0027t operate without that person, then you\u0027ve got a problem. If they\u0027ve set it up in a way where they\u0027ve kind of lessened their role and put more responsibility on a management team or on employees, then I would think that the business can carry on as is in the very, very short term. But eventually somebody needs to step in to be able to sign banking matters and do all that.\n\nNicole 00:29:14 So what do you do to facilitate that? What do you do? What does the lawyer have to do?\n\nMichael 00:29:18 If they\u0027re a successor or successors? Phone me up. My first question would be does the business owner have a will? If they do, we want to know. We need to know that you know. Do they have an executor appointed because it\u0027s the executor that\u0027s going to have authority? We would need the name of the company we\u0027d run a search to see. Is there a law firm that holds the corporate books? If there is, then maybe we\u0027re contacting that law firm to get our hands on the corporate record so that we can take a closer look to see, you know, how are the shares owned? Who holds the voting rights? Who are the directors? If there is just the one director and now that director is gone and there is a will, then, you know, I think we\u0027re probably talking to the executor about, you know, who should we appoint as a director? Somebody needs to step in.\n\nMichael 00:30:00 Typically the executor will step in, but not always, because sometimes I think you were saying, and I agree, Some businesses have a lot of risk, and people don\u0027t want to step into that risky role because you take that director appointment. That puts the responsibility on you. And some people aren\u0027t comfortable with that. But in most cases, the executor will go on. They\u0027ll appoint themselves as director, and then they\u0027ll have to get a good feel for the lay of the land where things stand. Maybe that\u0027s a conversation with the accountant as well, because the accountant for the company is going to have all the financial statements and have a sense of where the accounts are. And maybe it\u0027s talking to key employees or maybe a management team to figure out, you know, what needs to be done. I\u0027ve had lots of situations like that. And for trust companies too, where they\u0027ve had to step in and deal with active businesses, and that can be really difficult for anyone like us because we have our business and we and we know our business, but we don\u0027t know this other person\u0027s business.\n\nMichael 00:30:56 That can be really tough for someone stepping in. 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So, Michael, before we wrap up, I\u0027m going to give you a few things business owners say all the time. And I want you to tell me if they\u0027re dangerous or red flags. Are you ready? Okay. Number one, my spouse knows what I want. So it\u0027s all okay.\n\nMichael 00:31:26 Yeah, that\u0027s a red flag. my answer is so often it depends. And that\u0027s just the typical answer for a lawyer. Because we like to dive into the finer. We need detail in order to be able to give proper analysis. But it depends on, you know, is this a blended family? Is this a second marriage or is this a hoppy kind of single family where the kids are all one and the same for both spouses? Is there transparency amongst the whole family where the wife knows, but the kids also know, or do the kids not know what\u0027s going on and it\u0027s just the wife? I mean, I would be asking those questions, depending.\n\nMichael 00:32:00 Okay. If the wife knows everything, what about your other people that are important in your planning? Are they on the same page as your wife? Do they get along well? Do they not? I\u0027m all for transparency, so I am a supporter of being transparent on estate planning with our clients, but also with their families. I\u0027ve had meetings like that before where we\u0027ve done comprehensive plans for business owners, where kids might be involved, or there might just be a lot of value, and they\u0027re curious to know what\u0027s happening with succession for themselves, where it\u0027s maybe a blended family. And we\u0027ve brought everyone in and we have discussions and fielded questions, and so that everybody knows and is on the same page. You can\u0027t always do that because sometimes the dynamics are just too far gone to be transparent or people will have. If everybody knows what\u0027s going on, then they\u0027re just less likely to turn into a fight.\n\nNicole 00:32:48 So that\u0027s my exact experience from years in estate planning. And, you know, our own family.\n\nNicole 00:32:54 We are a business owning, blended family. And because of what I\u0027ve seen, we do what you recommend. We\u0027re very transparent with the kids about this is what we\u0027re doing. This is why this is what the plan is. You don\u0027t have to tell them every value figure. But generally speaking, sharing what the plan is, it helps a lot in terms of preventing conflict in the future.\n\nMichael 00:33:16 Yeah that\u0027s.\n\nNicole 00:33:16 Great. Another statement my accountant handles the tax, so I\u0027m sure it\u0027s all covered.\n\nMichael 00:33:22 I guess my question would be who\u0027s your accountant and can I have a quick chat with them. Because that could be fine. I mean, there are lots of excellent accountants out there but they all have different approaches, you know, similar to all professionals, really. And some of them just keep their heads down and focus on the tax reporting. And some of them get more involved in the business, not operations side, but the financial side, I suppose, and even the bigger picture planning side. So some of them really want to engage on that and some don\u0027t.\n\nMichael 00:33:48 And I would probably want to take a look at it, but it could be fine.\n\nNicole 00:33:53 Another statement: my business partner and I have a handshake deal.\n\nMichael 00:33:56 Oh, that\u0027s always a problem. Yeah, that\u0027s a problem. And, for obvious reasons, if that business owner then passes away and now your successors step in and try to deal with it and try to uphold that handshake agreement. What do they have to do to back up what the agreement was even to be? 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