PASSING ONTO THE NEXT GENERATION

Tax planning is essential for estates

By Brook Thalgott

Photos Images By Jon Gillies

No one really wants to think about what will happen when we’re gone, but it’s so important to do so. Making sure your estate is taken care of long before it’s needed is vital for so many reasons. It’s crucial to help your loved ones know what you want, and take that burden from their shoulders. There is also another reason to plan your estate now versus later: taxes.

“One of the most complex issues I see in estate planning is intergenerational transfers and the Lifetime Capital Gains Exemption (LCGE), especially in farming operations,” says Nancy McMahon, owner at N.M McMahon CPA Professional Corporation. “It takes careful planning to ensure your estate is passed on properly. Otherwise, your family can be hit with major tax consequences.”

The first, and possibly most important, thing to note about intergenerational transfers that qualify for the LCGE is that they must run through vertical line of lineage—it must occur from parent to child, or grandparent to parent to child, or grandparent to grandchild. It does NOT work between siblings, or between aunts or uncles and nieces or nephews. “You can transfer between yourself and a child or grandchild. You cannot transfer to your brother, sister, niece or nephew without tax consequences,” says Nancy. “This can be complicated for farming or business operations that involve more than one branch of a family tree.” Because of the complexities of intergenerational transfers and the LGCE, it is essential to speak a qualified professional on how to manage your circumstances.

Family relationships can be intricate, and money and inheritances can add another layer of complexities. “You also have to consider factors beyond money when it comes to planning,” says Nancy. “For example, if you have two children and a farm where only one wants to farm, consider how you will manage that. Factors like fairness and ‘sweat equity’ also come into play in these situations.”

The simple message for estate planning, especially when it comes to business operations and family farms, or estates with significant value is that expert advice is key. “Talk to the appropriate professionals that understand all the possible legal and financial ramifications of your estate,” says Nancy. “Once you have that, making decisions becomes much easier. It’s always better to start now than wait until it’s too late.”

The Lifetime Capital Gains Exemption (LCGE) allows Canadian incorporated small business owners, ownership partnerships, relatives of owners, holding corporations, family farms, and fishing operations owners to claim a deduction when selling shares of a corporation that can effectively reduce the taxes realized on a sale of their business. It allows people to keep the profits from qualifying sales to use the money for retirement, future investments—or to create an estate for inheritance purposes.

Ryan Campbell , owner