Separate Wills & Powers of Attorney for Property for Business Owners: How Useful Are They?
Business owners, shareholders, consultants, and others starting or owning a business should consider having a separate Will and a separate Power of Attorney for Property for their business interest. The benefits of isolating a business interest from the assets of a person are multiple.
Often, having a separate Will or Power of Attorney for Property solely for a business interest is not considered important in business until illness strikes or there is a death that prompts a person to act.
Multiple Wills or having more than one Will is allowed in Ontario so long as each one is not revoked by the other. Multiple Wills are made to isolate different assets. It saves estate administration taxes for those assets that do not need a Certificate of Appointment of Estate Trustee. It may also save time and delay in the administration of an estate.
For example, lawyers are encouraged to have a separate Will and a separate Power of Attorney for Property for their law practices. Having a separate Will isolates the administration of a law practice from a deceased lawyer’s general assets. So long as a third party will not require a Certificate of Appointment of Estate Trustee, the estate trustee for a deceased lawyer’s law practice will not have to apply to court for a Certificate of Appointment of Estate Trustee.
This means privacy for the deceased lawyer’s estate since the value of the law practice or any aspect of the law practice will not have to be made public through a court application. Also, because there is no court application, there is no payment of estate administration taxes (previously called probate fees). In addition, there is no delay in the administration of a deceased lawyer’s estate that may be caused by the processing of a court application or by the administration of the deceased’s other assets.
Similarly, a partnership interest is another example that may be dealt with in a separate Will. Partnership agreements often identify what happens when a partner dies. A deceased partner’s Will should be consistent with the process of disposition of a partner’s interest on death as set out in a partnership agreement. Again, it means privacy for a deceased partner and the partnership, a saving of money on estate administration taxes, and absence of delay that may be caused by a court application or by the administration of the deceased’s other assets.
Another example of having a separate Will for different assets is for shares held in private corporations. Business owners or consultants operating in a corporate structure will generally own shares. Having a separate Will for those shares will again isolate the shares from the other assets of a shareholder in the administration of a deceased shareholder’s estate. No estate administration taxes are paid if no third party wants the estate trustee to apply for a Certificate of Appointment of Estate Trustee. The transfer of shares will not be affected by a court application for a Certificate of Appointment, or by a delay in the administration of the deceased’s other assets.
Again, a separate Will for shares held in private corporations should be consistent with a shareholders agreement. In fact, when a shareholders agreement is entered into, that is the time to do a separate Will for a shareholder.
The same holds true for business owners operating as sole proprietors. They should also consider isolating their sole proprietorship business in a separate Will.
Thought must be given as to who will be the estate trustee. Generally, it is someone familiar with the business or a similar type of business. Often, business owners who have partners or equal shareholders will name that person as the estate trustee. A question arises as to whether this may pose a conflict of interest with a deceased partner’s or shareholder’s estate.
Naming a beneficiary may require input from a lawyer and an accountant so that a disposition of shares of a deceased person or of a business owner will result in the most tax efficient way for a deceased’s estate and a beneficiary.
In drafting a Will for a business owner, provisions can be included that are tailored to the business or provisions that an estate trustee may need to manage or sell a business during the administration of deceased business owner’s estate.
Equally as important for a business owner is to have a separate Power of Attorney for Property that will address the incapacity of such person.
Sole proprietors or unincorporated consultants are particularly vulnerable if they become incapacitated and need to have their business managed or wound down during their incapacity. A separate Power of Attorney for Property allows the appointment of a person familiar with a person’s business who can manage the business. The document can be tailored to the business and include powers of management to an attorney for property. It can also restrict the attorney for property to doing a particular aspect of the business. Different attorneys for property can be appointed to manage different parts of a business.
Other professionals in partnerships or corporations are not as vulnerable as there will likely be a process of managing an incapacitated professional’s practice. Someone within the partnership or corporation will take over an incapacitated person’s practice.
The point is to consider at the outset of starting or buying a business what is required if a person dies or becomes incapacitated. These issues may be address in a partnership agreement or shareholders agreement but the next step is rarely done, that is, reflecting the arrangements in a separate Will or a separate Power of Attorney for Property solely to deal with a person’s business interest.
So, if you are a business owner, sole proprietor, partner, or shareholder, consider discussing with your lawyer having a separate Will or a separate Power of Attorney solely to deal with your business interest. It will save your estate money and time.
Disclaimer and Cautionary Note
The foregoing does not constitute legal advice or establish a lawyer-client relationship. Specific legal advice should be obtained rather than solely relying on this article.