I own a business, is Willful right for me? This is a question we hear all the time at Willful.
In this post we’ll break down all the nuances of creating a will as a business owner so you feel equipped to make the best decision possible when it comes to your estate plan. We’re small business owners ourselves at Willful, so we know how important it is to consider succession planning!
Can I use Willful to create my will if I own a business?
For those who don’t want to read this entire article, the short answer is yes! Your business assets are treated like any other personal assets, and Willful has a “carry on business” clause that allows your executor to step in and make decisions on behalf of your company (for example selling it or winding it down).
That being said, Willful does not cater to tax planning (through vehicles like a dual will - see later in post) or building in custom succession planning wishes - so if you have complex business needs, or you just want professional advice, you may want to visit a tax specialist or lawyer.
What does Willful include in its will related to my business?
The only clause in Willful wills that is specifically business-related is called a “carry on business” clause.
What is a carry on business clause?
This is part of the executor powers section in our will, and it explicitly gives the executor the authority to step into your shoes and act on your behalf when it comes to your business interests. For example your executor could sell your business, sell your shares, wind it down, or do anything else related to your business that you would do if you’re alive (the only thing they can’t do is step into your role as a Director - so for example if you sit on a Board of Directors, they wouldn’t be able to replace you on that).
Do I need a separate corporate will for my business assets?
You do not need a separate will for your business assets. If you own a business, or shares in a business, those assets are treated like any other asset you own - for example you can pass on your shares in a business in your will just like you would pass on a car or the contents of your savings account. However you may want to create what’s called a dual will to separate your business assets - this is not required, and is solely for the purpose of reducing probate fees at the time of your passing (see next section).
Does the type of business I own dictate whether I can use Willful?
Willful was designed for Canadians with simple situations - so if you own five companies and have 5,000 employees around the world, Willful is likely not the best solution for you. Here’s a breakdown of how ownership affects your will:
- I’m a sole proprietor: If you’re a sole proprietor, or you have a side hustle or business that isn’t incorporated or registered, those assets would fall under your estate.
- I own my business with a partner (as a partnership): If you do not have a partnership agreement, the business is treated as dissolved when one business partner passes away (read more in this article). While rules vary by province, the Partnerships Act in Ontario also stipulates that business partners split all assets equally if you do not have a partnership agreement and one partner passes away.
- I own or have shares in a private corporation: If you have shares in a privately-held corporation, those shares will be treated as part of your estate. The business will continue to operate after you pass away, since it is a separate legal entity. Typically you would also have a shareholders agreement that outlines what happens to your shares when you pass away, though not every corporation has these types of agreements set up.
Willful might be a good fit for you if you own a consulting business or a sole proprietorship (for example you’re a doctor) that would be wound down when you pass away, or you own a private corporation and are okay with those assets passing through your primary will - but remember to double check your shareholders agreement to ensure that it matches the wishes you’re including in your will.
What is a dual will?
Sometimes called a “corporate will,” think of a dual will as a secondary will - it is a will that covers only your business assets, whereas your primary will covers your personal assets. Business owners may want to create a dual will to separate their business assets so they are not subject to probate fees after they pass away - these fees can be expensive (about 1.5% of the value of your estate in Ontario - you can find a detailed breakdown on probate fees by province here), which means that on a business valued at $1M your estate will have to pay about $15,000 in taxes (this would vary by province).
If you have a sole proprietorship or your business assets aren’t of huge value you may choose to forego a dual will and treat all assets equally under your primary will, but the choice is completely up to you.
Does Willful offer a dual will?
At this time no, we do not provide the option to create a dual will for business assets.
What happens to my business if I pass away without a will?
If you die without a will - what’s called dying “intestate” - a government formula in your province will outline how your assets will be distributed. This applies to your business assets, unless you have a shareholders agreement or other documentation through your corporation that overrides that. The courts will also appoint an administrator to wrap up your estate, and that person will deal with your business interests.
My business has a shareholders agreement that outlines what happens upon the death of a shareholder. Does this override my will?
If you’ve drafted shareholders agreements for your business, or you plan to in future, you can include a provision that pertains to what happens in the event of a shareholder passing away. Your lawyer can help you build provisions into your shareholders agreements so there’s a clear course of action for how those shares will be dealt with in the event that someone passes away.
It’s important to ensure your shareholders agreement matches what you outline in your will - for example this article outlines what happened when someone left shares in their business to their sister, but there was a clause in the shareholders agreement that said any shares had to be offered for sale to other shareholders before being transferred. The result was the shares were held in trust for the sister, vs. being transferred directly. If you have a shareholders agreement and you’re not sure if it would match how you’re dividing up assets in your will, you may want to speak to a lawyer or tax specialist. Willful is not an expert in this level of estate planning for your business.
What is an estate freeze?
An estate freeze is a common tax planning tactic for business owners that freezes the value of your business at a certain point in time, and transfers the future value to your heirs so the capital gains associated with your business growth aren’t incurred on your passing. This is a complex tax planning strategy and is not something we handle at Willful - you can read more about it here.
Why should small business owners have a succession plan?
Small business owners should have a succession plan to make sure their business has a smooth transition of leadership and ownership in the event of unexpected changes, such as death or disability. Succession planning helps mitigate disruption, preserves the business's value, and maintains continuity and worker morale, protecting your legacy as an owner and the interests of employees and stakeholders.
What else should I be doing as a business owner to flesh out my succession planning?
Great question! Here are some tips for business owners:
1. Start by mapping out your wishes
While none of us wake up expecting to get in a car accident or suddenly pass away, it’s important to think about your wishes related to the business if you were to become incapacitated or die. Would you want the business to shut down, continue independently, or be sold? Who will replace your role - an existing employee or external hire? What’s the legacy you want to leave with the business, and is there anything else they should know about making those decisions?
It’s likely you haven’t even thought about these things, so putting them on paper - or at least considering them - is a good way to start.
2. Discuss your wishes with your executor or key staff
It’s important to have discussions with your executor about your funeral and end-of-life wishes, and it’s just as important to discuss your wishes for your business. Providing your executor with the answers to those key questions will ensure you have a clear plan that can be followed in the event of an emergency.
In addition to your executor, you should consider talking about succession planning with your Board of Directors, key investors, and key members of your leadership team, and put together a plan for process and communications in the event of your passing (for example would your executor know how to access your online business accounts, or how to pay your corporate taxes?).
3. Document critical information
As business owners, we hold so much of our business plan and daily operations in our head - in an ideal world we’d have every account, password, and process documented and shared with key people, but the reality is there’s often information that only you know.
Part of planning for the unexpected is ensuring you’ve documented critical information, and shared it with either your lawyer, your co-founder, a senior team member, or a family member who can provide access to it in the event of an emergency (for example using a password management platform like 1Password, or ensuring all company info if stored in the cloud and accessible by other key team members).
4. Consider key person life insurance
If you were to pass away, it would be a big hit to the company, and to team morale. Key person life insurance is a way to offset the inevitable period of uncertainty that would follow the death of a founder or executive. By taking out a life insurance policy for founders or key executives that’s payable to the company, it ensures that the company would have an injection of cash that could help them weather the death of a founder or executive. It would also give your team breathing room to grieve, instead of forcing them into business as usual.
These policies are an affordable way to have the peace of mind that if you were to pass away the business would have the financial support it needed to carry on - and they’re often required by investors at a certain stage of growth.
At Willful we conducted research that found that 57% of adults don’t have a will. That means there are about 16 million Canadian adults who haven’t protected their families by creating a will, and a large number of those people are entrepreneurs, freelancers, or side hustlers who need to worry not only about their family, but about how their business lives on. Taking the time to think about succession planning means you’ll have peace of mind that your family is protected, but your business is too.
If you have additional questions about estate planning as a business owner, or if Willful is the right fit for you, you can email us at support@willful.co or book a call with our team here.
