Make sure your assets are protected through a complete estate plan that includes a legally recognizable will. This is the only way to ensure that your assets are distributed correctly and that ownership of your small business transfers smoothly to the subsequent owner.
Types of Wills
The Government of Canada recognizes three types of wills:
- Formal will: This is what comes to mind when most people think of a will. A formal will is signed by the individual and is often prepared by an attorney. The act of signing is officially witnessed by two observers, neither of whom may be a beneficiary or the spouse of a beneficiary. Most formal wills are drafted by legal professionals.
- Notarial will: In Quebec, the formal will is replaced by the notarial will, which is prepared by a notary public. The notary acts as one of the two witnesses.
- Holographic will: The least advisable and least enforceable type of will. Holographic wills are drafted by the individual whose assets are in question and require no witnesses (though witnesses may be present).
Consequences of Dying Without a Will
If you are like most small business owners, a significant portion of your present wealth and expected future income are tied up with your company. If something happens to you and your assets are not protected through a will, the government considers your death to be intestate, which means the provincial government determines where your assets go.
Family business owners must also consider the legal transfer of company’s ownership to the next generation. Lack of succession planning is a serious issue for family businesses, particularly newer ones, and is a major reason that fewer than 15% of of family businesses survive to the third generation. Dying without an enforceable will makes successful transitions more difficult.
Benefits of Having a Will Early in Life
It makes sense to prepare your will early in life – you’re unlikely to receive advanced notice of your own death. Given the uncertainty involved and the potential consequences for your business and family, lacking a prepared will and estate plan is a big risk.
On an operational level, writing a will and thinking about its legal and financial ramifications can help you see the bigger picture. This is a useful habit to develop, and it will get you asking the right questions about your business’s long-term goals.
What If You Wait Too Long?
Estate planning is difficult, and writing a will may be emotionally or practically challenging. It is not the kind of process that lends itself well to procrastination. If you wait too long to draft your will and put it into effect, you may leave your business and family exposed unnecessarily.
How to Change a Pre-Existing Will
You need to draft a codicil if you want to make changes to your will. This is an amending document that either cancels or adds targeted information to an older will, and each codicil must be prepared in the same way as the original.