Anyone who owns a small or medium-sized business, regardless of age or stake in the company, should give some serious thought to succession planning. Why? Because you never know when you're going to be hit by a wayward bus. That metaphorical bus could kill you; or worse, could leave you physically or mentally incapacitated.
It's fundamentally important to your family, business, and employees, managers and co-owners that the business you've helped to create can continue without you.
Your lawyer, accountant and insurance broker will be able to provide you with a number of options to deal with the possibility of your demise or incapacity. Certainly, you should have a shareholders agreement in place between you and other shareholders to deal with issues such as death or incapacity. In particular, consider a life insurance policy to allow the company to purchase back the deceased's shares from the estate of the deceased shareholder.
But the most basic first step that everyone, including business owners, should take is to have a will drafted by a professional. It surprises me how many people I know who still don't have a will but intend to "get to it one day."
Most lawyers recommend clients review their wills every five years, or when their circumstances change, such as the birth of children, deaths in the family or a change in their financial circumstances. In addition to a will, you should also have a power of attorney/representation agreement (it's called different things in different provinces) to deal with financial and health care matters in the event the metaphorical wayward bus doesn't kill you, but you become physically or mentally incapacitated.
If your business is in British Columbia, the law with respect to wills and estates significantly changed on March 31 of this year. The new B.C. Wills, Estates and Succession Act (commonly called "WESA") makes some substantial changes to the laws of wills and succession in order to modernize the laws. If you live in B.C., its even more important than ever to make a will to ensure your wishes are followed on death including plans for your business continuing after your death.
Mary-Jane Wilson, a wills and estates lawyer at Wilson Rasmussen LLP in Surrey, and author of the British Columbia Probate Kit, advises that WESA has made some significant changes to the law in BC.
1. WESA doesn't invalidate existing wills. Wills properly made prior to WESA coming into effect continue to be valid.
2. WESA changes the law of intestate succession (if you die without a will). For example, if the deceased does not have a valid will, the spousal life interest in the spousal home is abolished. Instead, the spouse will have the right to purchase the spousal home.
3. The distribution of assets has changed under WESA where there is a spouse and no will. Under the old regime, if there was no will, a spouse received the first $65,000 of an intestate's estate. Now the spouse receives the first $300,000 from the estate but if there are children from a prior relationship, the spouse only receives $150,000. Under the old legislation, the closest family members to the deceased shared in the estate if there was no will pursuant to a specific formula. Although this principle remains unchanged, the manner in which the assets are distributed has been significantly modified. There are now different distribution rules in circumstances where there is no spouse or children.
4. The new scheme is based on a "parentelic" scheme as opposed to "closeness to blood relations" scheme. Prior to WESA, estate lawyers were required to search all next of kin until an heir was found. Now, the search for an heir stops at the fourth degree of relationship and if no such heirs can be found, the estate will Escheat to the Crown (legalese for "the provincial government gets it").
5. Survivorship rules will change. Under the old legislation, in an accident where it was impossible to tell who died first (for example, a car accident or airplane crash) the youngest person who died was deemed to have survived the older person who died. Under WESA, each person is deemed to survive the other. Thus in the case of joint tenancy of an asset like land, the asset is deemed to be held as tenants in common and will not pass to the survivor. But, if the person fails to survive the deceased by five days, they are deemed to have died before the deceased.
6. Where a witness to a will is also a beneficiary, the gift to the witness is still considered void, but it is possible for the gift to be saved by the courts upon a court application.
7. To challenge a will based on undue influence, the onus has shifted from the opposing party having to prove undue influence directly, to the beneficiary (this is usually a caregiver) who is claiming that the will is valid, to prove that there was no undue influence.
8. Marriage no longer revokes a prior will but if a will was revoked by marriage prior to March 31, 2014, it cannot be revived.
9. Anyone over the age of 16 can now make a will in B.C.
10. Finally, the Courts in B.C. will now have the power to declare a document, (which does not meet the "formality requirements" of a will), to be an effective will nonetheless. Emails, scraps of paper and DVDs may be considered a will if the court believes that the willmaker intended it to be a will. A court can only "cure" an invalid will if there is sufficient evidence of the willmaker's intention, and because a court application will be required, this will add expense to administering an estate; a good reason to have a will drafted now.
So if you live in B.C., all of these changes to the law are good reasons to get your estate planned, your will drafted and your house in order in case that wayward bus is coming for you.
Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp. in Vancouver, he is an adjunct professor at Simon Fraser University (SFU), and he is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.