Intestate Estates and Private Corporations: Why Now is the Time to Prepare your Will
When it comes to estate planning, families who own private corporations face unique challenges—especially if the unexpected happens, and the business owner passes away without a Will. Alberta’s Wills and Succession Act provides rules for distributing estates in such cases, but those rules rarely align with the complexities and goals of a family-owned business. If you want to protect your family’s financial future and the legacy of your business, understanding these rules is important. Getting a Will is critical.
What Happens if You Die Intestate?
Dying without a will means that Alberta’s intestacy laws decide how your estate is divided. This includes private corporations, which can complicate succession plans and leave families unprepared for the financial and operational consequences.
Key Rules of Intestate Succession for Private Corporations
If You Have a Spouse or Adult Interdependent Partner (AIP):
If there are no descendants, your spouse or AIP inherits the entire estate.
If there are descendants:
If all descendants are shared with your spouse or AIP, they inherit the entire estate.
If any descendants are not shared (e.g., children from a previous relationship):
The spouse or AIP inherits the greater of the prescribed amount (set by the Minister of Justice) or 50% of the estate.
The remainder is divided among your descendants.
If There Is No Spouse or AIP:
The estate, including shares of private businesses, are distributed among descendants using the per stirpes method, dividing assets equally by family branches.
If there are no descendants, the estate passes to other relatives, such as parents or siblings.
No Eligible Heirs:
If no heirs exist within five degrees of kinship, the estate—including business assets—reverts to the Crown (the government).
Why Intestacy Is Risky for Family Businesses
For families who own private corporations, intestacy can lead to unintended and disruptive consequences:
1. Business Shares May Be Divided
If the deceased owner has multiple heirs, the shares of the business could be split among them, even if not all heirs are involved or interested in the business. This could create management conflicts or force the sale of shares to outsiders.
2. Potential Liquidity Issues
If taxes, debts, or spousal claims exceed the available cash in the estate, family members may need to sell business assets or shares to cover those costs—jeopardizing the business’s future.
3. Loss of Control
Without a clear succession plan, surviving family members may struggle to maintain control of the business, especially if ownership is divided among heirs or non-family members.
4. Missed Tax Opportunities
Proper estate planning enables families to implement tax-efficient strategies, such as estate freezes, to minimize taxes upon death and preserve the business’s value for future generations. Without a will, these opportunities are often lost. Additionally, the delays, conflicts, and complications that frequently arise in intestacy can hinder the implementation of common post-mortem planning strategies, which are critical for avoiding double taxation that can arise following a shareholder’s death.
The Solution: Plan Ahead
A well-crafted estate plan is essential for any family business owner. Here’s what you can do to protect your business and your family:
1. Create a Will:
Clearly outline how business assets should be distributed.
Designate successors to manage the business.
Ensure it is in alignment with any other tax strategy put into place.
2. Implement a Tax-Efficient Plan:
Use tools like estate freezes to lock in the current value of your business while allowing future growth to benefit your heirs.
Explore holding companies or family trusts to streamline succession.
Ensure any tax strategy put into place is in alignment with your Will.
3. Appoint the Right Executors:
Choose individuals who understand the business and can navigate complex financial and tax issues. Be sure to provide them with guidance such as a list of your trusted advisors or any other direction you would like them to have.
4. Communicate with Your Family:
Discuss your wishes openly to ensure alignment and minimize future disputes.
Final Thoughts
For families with private corporations, dying intestate isn’t just about who gets what—it’s about the future of the business you’ve worked so hard to build. A lack of planning can put that future at risk, creating financial and emotional challenges for your family.
That’s why it’s essential to work with a Trusted Tax Advisor who understands the unique needs of business-owning families. By collaborating with an advisor, you can create a comprehensive plan that minimizes taxes, preserves your business, and ensures your family is well cared for.
If you’re ready to secure your legacy and protect your family business, I’d love to help. Reach out today to start the conversation—your future, and your family’s future, depend on it.
Disclaimer
This blog post is provided for informational purposes only and is not intended to serve as legal advice. The information shared reflects general principles and does not replace personalized legal counsel.
For legal matters such as creating a will or addressing estate planning under Alberta’s Wills and Succession Act, it is strongly recommended to consult with a qualified lawyer who can provide advice tailored to your specific circumstances.
At 4Roots Tax Advisory, I specialize in providing tax advisory services that align with your estate and succession planning needs. While I do not provide legal services, I work collaboratively with your lawyer and other trusted advisors to help ensure your family and business are fully protected.
Use this post as a starting point to understand the importance of planning, and feel free to reach out to discuss how we can create a tax strategy that complements your overall estate plan.
