There are several issues that frequently arise when an estate containing regarding shares of a private corporation is being administered. One of these issues is the ownership structure and it’s bearing on what type of estate plan is possible as well as the steps that must be taken in this regard while testator is still alive in order to implement the testator’s wishes and intentions on death.
Probate Planning
As estate administration tax is 1.5% on asset values that exceed $50,000, it is essential to consider whether a separate will should be executed to dispose of private corporation interests. The use of multiple wills to reduce probate tax in Ontario only works if the testator controls the private corporation so that the estate trustee does not have to go to a third party in order to transfer the deceased’s shares at death.
Provincial business legislation entitles the corporation to require an estate trustee of the estate of the deceased shareholder to provide evidence before transferring legal title to shares from the deceased shareholder to the estate trustee. Where the estate trustee is court appointed, that is by a Certificate of Appointment of Estate Trustee Without A Will (“Certificate”), the corporation has the right to require production of the Certificate. Where there is a valid will, the corporation can require what evidence it deems appropriate. If the deceased shareholder has a controlling interest, the estate trustee is permitted to rely on the original unprobated will. If the deceased is a minority shareholder, the controlling shareholders may not want to risk acceptance of an unprobated will which may be challenged after transferring the shares.
Corporate Records
It is critical that the owner of private corporate shares ensure that the minute book and other corporate documentation outlining the ownership structure of the corporation are current and accurate. Ideally, these records would have been created from the inception of the corporation (known in the trade as the process of “organizing” the corporation) and maintained regularly and/or when there were major changes or transactions that took place over time. These records tell the story of the corporation and reviewing them is part of an astute estate lawyer’s due diligence in preparing an estate plan.
Furthermore, it is not prudent to rely on the shareholder’s information about the shares he or she owns. The reason for this is two-fold. First, business owners are very often unaware of the conditions that may be attached to their shares, often restricting their transfer. These restrictions may be found in the Articles of Incorporation (or any amendments to them) or in a shareholders agreement. As corporate estate planning is about the post-mortem transfer of shares or assets of a business, it is prudent to discover any such restrictions on transfer and resolve them so that the plan and the resulting will can be carried out.
Specifically, the share structure of the corporation, number and class of shares owned by the testator and the characteristics of those shares should be confirmable by viewing the corporate records. One will also be able to determine whether the testator controls the corporation by examining the voting rights attached to the issued shares. Furthermore, if the testator is not the sole shareholder, it will be important to determine what percentage of the overall votes the testator controls. Usually, 51% of the votes will entitle the shareholder to elect the board of directors.
Unfortunately, although the status of the corporate structure is of great importance to a business succession plan, there are still many businesses today that either have no records in this regard or if they do have them, they are fragmented and out of date. This makes it necessary to create records covering a lifetime of business activity, sometimes in summarized format, as that is all that is possible, which obviously isn’t ideal. This exercise can be very time consuming and costly thus the business owner is forewarned to avoid this scenario as much as possible and, if needed, to start the “update” process in the very near future.
If you need assistance with business succession planning, probate issues or maintenance of corporate records, please contact Andrea Kelly. Andrea’s team of professionals will be happy to assist you.
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Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.