The Importance of Current & Effective Documents

One of the questions we regularly ask clients is “do you have an up to date will?” The most common response is an admission that there is no will, or that their will is out of date, “but we are planning to get them updated.” This is very understandable. Wills and other legal documents are put in place less for active management of our day to day affairs, and more for guidance when things are not going the way we would like (eg. death, divorce, partnership break ups, and so on).

While these documents may not have a sense of urgency for completion, they are important to get in place, and delaying does no one any good. This is especially true when the unwanted circumstance comes to pass and the related legal documents are not done, are not reflective of what is desired, or are not well designed. If a business owner dies without a will, the business may pass (tax-free) to the spouse. However, does the spouse want to run the business? If it is a partnership, does the other partner want the grieving spouse as the “new partner?” If both spouses are killed in an accident, do the shares transfer to the kids per the wills? Does that make sense? What are the tax implications for the beneficiary of receiving the business, property or other assets? The government will always look for ways to maximize tax revenues on the passing of shares or other assets, and there are effective ways to minimize these taxes – but it does take good planning, and well-constructed and current documents.

Families with businesses often need to think through the implications of shares passing to the next generation and what their goals and preferences are around succession. This is especially true for shares in a business. Wills often provide for the passing of the business to the next generation, but may be silent in terms of whether this means to their direct descendants only, or if the shares can also pass to the spouse/in-laws of the next generation. Businesses can be worth a great deal of money, often built up over decades by the family working together. If the value in the business is meant to provide a legacy to future family members, it is not uncommon that shares need to remain in the hands of direct descendants, to avoid loss of control outside the family should divorce occur, and the surviving partner re-marry. Pre and post-nuptial agreements and cohabitation agreements are effective ways of creating clarity around the family’s intentions in these kinds of circumstances.

Unanimous Shareholder Agreements serve to guide owners of companies in terms of the agreed ways to work together, or they navigate the issues when things are not going well. Regular review and updating of these agreements, and ensuring the shareholder and partner agreements are properly aligned to other documents – like wills – is important to make sure that if/when relationships change or people pass away, the intentions of everyone are honored, and conflict is minimized.