What is your business worth?

Do you ever wonder what your business is worth? If you plan to sell it, you need to know its value, or you might just want to know for tax purposes. Setting an accurate value is no easy task.

It may be relatively simple to determine the value of some parts of your business such as land, buildings, vehicles or inventory, all of which are referred to as tangible assets. Those items could perhaps be compared to other, similar, items to give you an idea of what they are worth. However it may be much more difficult to value other assets. You will need to assign a value to less concrete items (known as intangible assets) like patented technology, goodwill, copyrights, licensing or franchise agreements, trade secrets and customer lists. You can't simply compare yours to others because yours are unique.

Other considerations are whether your business is located in a small or large market, and whether there is potential for growth in that market.

How do you put a value on these things?

Most business owners over-value their businesses and are disappointed in the price they can get for it at sale, because they over-estimate the value of key clients. They forget that once they are gone from the business, the key clients may not feel the same loyalty to the new owners.

For a detailed discussion about what goes into the valuation of a business, how and where to find a business valuator, ideas for maximizing the price of your business and some tips for finding buyers, check out my new book called "Succession Planning Kit for Canadian Business". In the book I talk about selling a business to family members, management/key employees and independent purchasers. At the top of this blog there is a link for you to buy the book online.

2009 Best of the Best

I had some great news at work today. It was announced that I've been selected as "Best of the Best" for 2009, meaning that I'm the top performer in Canada for the Scotiabank group in my business line. I'm so pleased and excited about this!

Clarifying joint and alternate attorney's roles

Yesterday I spent some time on the phone with a senior banking officer from a Scotiabank branch who had customers in her office with a question. The customers were acting for their parent under an Enduring Power of Attorney. They were named as joint attorneys. They wanted to know why both of them had to sign the banking documents and why it wasn't alright for just one of them to do the banking. My banking colleagues tell me that this is a question that many customers ask.

The problem arises because the logistics of a joint arrangement are not really explained to the customers at the time the Enduring Power is prepared by the lawyer. What clients really want, in my experience, is a document that says "either/or" - in other words they want it to say that sometimes one can act as attorney and at other times the other person can take care of things. Unfortunately it doesn't work that way. If you are named as joint attorneys, all decisions must be jointly made and both of you have to sign all documents.

If you are a joint attorney, you might think this is inconvenient, but you might reconsider that if you think about your own liability. Say you and your brother are joint attorneys for your mother. Without your knowledge, your brother empties out your mother's bank account and uses the funds for personal use. When the loss is discovered, your brother insists that you were aware of it and that it was usual practice between the two of you only to get one signature on banking documents. You would be on the hook for something you didn't do. If, on the other hand, two signatures are used for everything, your brother would not be able to get away with this in the first place, much less blame it on you.

Customers often misunderstand the alternate attorney arrangement as well. Typically an Enduring Power of Attorney will name a primary or first choice person, then go on to name an alternate or second choice person. The language used is generally something like "if my primary attorney refuses or is unable to act as attorney, then my alternate attorney shall act." This does not mean that if the primary person refuses to do a particular thing on a particular day, or is out of town that day, the alternate can step in. The "refusal or inability" mentioned means a complete refusal to be the attorney at all, not a refusal to take care of one transaction.

The alternate only gets to step in if the primary person is completely out of the picture.

If you are named in any legal document, don't assume that you know what you can legally do. There is always legal liability hiding around the corner if you act for someone else in financial transactions, so it is important to clarify what your rights and responsibilities are. If you wish, you can read the law itself (in this case the Powers of Attorney Act). A good place to see Canadian law for free is www.canlii.org.

A better idea is that if you are named in a Power of Attorney and it's time for you to act, get some one-on-one legal advice before you do anything. Ask specific questions about how things work and who is entitled to do what. Also ask about the restrictions or limitations on your authority.

Great time at the Oilers game

What a great time we had on November 18 watching my beloved Edmonton Oilers win 6 - 4 over the Colorado Avalanche. Thanks to lawyers Doug Gorman (The Estate House), Wanda Fawcett (Bishop & McKenzie), Len Dolgoy (Witten LLP), Joyce Burnett (Duncan and Craig) and Audrey Wakeling (Witten LLP), accountant Allan Sawiak (Kingston Ross Pasnak) and SCI executives Bobby Judge and Ken Papirney for joining the Scotia Trust team in the Scotiabank box at Rexall Place.

Doug Gorman appears to be as big a fan of the Oilers as I am! It was a fun group so I'm really glad everyone could join us. Some days I really love my job!

My new book is now available

I'm thrilled to let you know that my new book, "Succession Planning Kit for Canadian Business" is now available. To order online, click on the picture of the book on the left hand side of this blog. You can also pick it up at any Chapters store or order it from Chapters Online. Like "Protect Your Elderly Parents", this book is written for non-lawyers and is full of straightforward information written in plain English. The book is written in pretty much the same style as this blog.

If you have any questions or comments about the book, or any suggestions you think I might like to see, please feel free to leave a comment here. I'm always interested in what readers have to say.

My next book will be out in the spring of 2010. I had such a huge response to "Protect Your Elderly Parents" that I'm returning to that topic. The spring book will be about talking to your family about some of the really tough subjects such as which legal solutions need to be put into place for ageing parents. I am constantly being asked about how to bring up these difficult conversations and how to hold a family meeting that will result in effective legal steps being taken, so I'm addressing it in that new book.

Multiple agents under Personal Directive?

Today I met with a client and talked about who he would appoint as his decision-maker (called an "agent") under his Personal Directive. In my experience, when a person thinks about what traits or qualifications his or her agent should have, the emphasis is not on actual skills or experience; the person just wants someone who loves him or her and will act in his or her best interests. My client has three adult children and his first idea was to name all three of them as joint agents.

I am not really a fan of someone having all three (or more) of his children acting together. One of the main purposes of a Personal Directive is to put a person in charge of being the spokesperson and decision-maker. The chances of all three children agreeing on all aspects of their parent's health and medical care are very slim. The value of the document would be greatly diminished.

When I talk to parents in this situation, they often say that they want all of the children named because they don't want to leave anyone out and possibly by doing so hurt their feelings. I applaud the goal of retaining family harmony but I don't think the joint agent arrangement is going to achieve it.

This client also said that he wanted all of his children to have input into major decisions regarding his medical and personal care if his Personal Directive were to be in effect. We discussd it and eventually arrived at a decision that pleased him and that I think will be effective. The solution is for the client to name his oldest child as his agent, and to state in the document that his other children must be consulted by the agent on all major decisions.

This does not give the other children a veto power or any legal authority. It does ensure that they will have the chance to give input on decisions that will be important to them. It achieves the client's goals of having one spokesperson and of having all children involved without bogging down the process.

When you meet with an estate planning lawyer, always ask for ideas about different ways to do things, and talk about your own ideas to see if they are workable. You should leave the meeting feeling satisfied that the lawyer understood your goals and came up with applicable ideas.

SE Calgary News interview now online

My interview with SE Calgary News is now online. We talked about issues arising from my first book, "Protect Your Elderly Parents". There is also a written story accompanying the video clip.

http://www.secalgarynews.com/index.php?s=butler

Who do leave my estate to if I don't have kids?

From time to time I meet clients who don't have spouses or children and they want ideas about where to leave their estates once they pass away. The first thought most people have is to divide the estate among their siblings, and that is a viable idea.

A variation on that is to leave money in trust for family members such as nieces and nephews, with instructions that the trust be used to pay for their education.

Another popular idea is to leave some or all of your estate to charities. Some people have causes that are dear to their hearts because a charity helped them or family members in the past. I met one client who is leaving several million dollars to a group of charities that deal with different aspects of illiteracy, as well as public libraries, because he struggled with reading his whole life.

Many clients like to leave money to the college or university they graduated from. It is possible to use your Will to set up a scholarship at a particular faculty at a particular school to help future students who may not be well off financially.

You can benefit several charities and get a tax break for yourself now by giving money to a charitable foundation such as Scotiabank`s Aqueduct Foundation or the Edmonton Community Foundation. In this kind of arrangement, your monetary gift is invested and the interest on it is used each year to give charitable gifts to the charities of your choice. The principal is not used, except to generate more income. You can then use your Will to give the rest of your estate to the foundation and continue on your pattern of giving.

To get ideas about which charities are out there and what kinds of activities they are involved in, go to http://www.donorsguide.ca/ . For more in-depth information on charitable organizations, go to http://www.charitycan.ca/.

If you are interested in any organization in Canada and want to know whether it`s a registered charity or not, check out the Canada Revenue Agency website at http://www.cra-arc.gc.ca/charities/.

Sometimes people wonder whether the government will take their estates if they don`t have a Will and don`t have a spouse or children. The government does not become a beneficiary of your estate unless and until absolutely no relatives can be found. The Intestate Succession Act of Alberta sets out who gets your estate if you die without a Will. If you do not have a spouse or children, the Act says your estate will go to your parents, your siblings and eventually more distant relatives. The better idea is to make a Will that sets out your wishes.

You should ask your estate-planning lawyer for ideas and talk over the possibilities.

The Many Complications of Cottage Ownership

My latest article called `The Many Complications of Cottage Ownership` is now online at Calgary Real Estate News. It talks about some of the things parents need to consider when they are making wills and want to keep a cottage in the family.

Check it out here:

http://www.cren.ca/content_view?MODE=VOL_ISSUE&VOL_ISSUE_ID=2746&PUB_DATE_DISPLAY=November+12%2C+2009&CONTENT_ID=4084

A busy day

I started the day in Calgary today, arriving at Global TV shortly after 6 a.m. Just in case I needed any further proof that I`m not a morning person, this morning was it! I was interviewed by Angela Kokott for the 6:00 news and will post a link if one becomes available. I then went to the McKenzie Pointe branch of Scotiabank in SE Calgary, where I was interviewed and filmed by SE Calgary News. Thanks to the staff there for accommodating us! There will be a link of the film clip available in the next few days and I`ll post that so you can check it out. There will also be a written story to accompany the film clip.

After that I went on to the Sylvan Lake Scotiabank branch and visited a bit with the staff and a couple of really nice clients. More thanks to the very friendly Scotiabankers in Sylvan Lake who took the time to chat with me.

Then I came back to Edmonton to catch up on all of my voice mails and emails and the tons of reading materials that always await me at the office.

Papers, Papers, Papers

I just came across these PDF papers that I've written for the Legal Education Society of Alberta (LESA) over the past year or so and presented to Alberta lawyers in seminars.

This paper, Beneficiary Designations: A Practical Guide, contains a potpourri of quick topics which touch on making and revoking beneficiary designations for policies, pensions and financial instruments. The goal is to ensure that all aspects of estate planning work together.

All estate planning involves thinking about taxation. So does the administration of an estate after an individual has passed away. This paper, Taxation of the Average Estate, is written for those who do not specialize in taxation and discusses taxation issues that will be encountered in the planning or administration of most estates.

Readability is accessibility, particularly when it comes to legal documents, but accuracy can't be sacrificed. This paper is a guide to help legal assistants and new lawyers prepare legal documents that clients can actually read and use.

If I die without a Will, my wife gets everything. Doesn't she?

Something I hear quite often from people is that they are not going to make a Will because they are married and they believe that everything they own will, because of the fact that they are married, go to their spouse when they pass away. Unfortunately, this is not necessarily the case.

Every province and territory in Canada has a law which says what happens to the property of someone who dies without a Will. In Alberta, it's the Intestate Succession Act. This law works together with other arrangements you've made, such as beneficiary designations (in insurance policies, RRSPs, pension plans etc) and joint titles (such as on your home or cottage). This combination of laws will decide who gets what from your estate when you pass away without a Will.

When you pass away, if you are married and everything you own is either in joint names with your spouse or designates your spouse as the beneficiary, then yes, your spouse will get everything you own. If you have any assets that are in your own name, then those assets are governed by the Intestate Succession Act.

The Act says that if you pass away leaving a spouse and one child (legitimate or otherwise, a minor or adult) then your spouse gets the first $40,000 of your assets and the rest is split evenly between your spouse and your child. If you leave a spouse and more than one child, the spouse gets the first $40,000 and one third of the rest. The other two thirds are divided equally among the children.

Note that this distribution includes children of previous relationships as they are your biological children. It also includes adult children with whom you might not have a relationship at all.

If you still have, for example, a life insurance policy that names your first spouse or your parents, that policy will still be paid to your named beneficiaries. If you own a cottage with your brother as joint tenants, the cottage will go to your brother and your spouse will not inherit any share of the cottage.

People are often surprised, and not always in a good way, when they realize how intestacy laws would apply to them and their families. It is a huge mistake to assume that you know how the law would apply to you when you have never asked a lawyer. If you have a family, you should have a Will properly prepared by a lawyer.

Dower Act can change your plans

Yesterday I met with a client who was in his second marriage. Both he and his wife had children from their first marriages. They agreed verbally that each of them would leave their estates to their respective children.

Unfortunately we ran into a snag that might sound familiar to many people because the situation is not unusual. The client and his wife live in a home that is in his name only. They've always kept it in his name only because their plan is that when the husband passes away, the house will go to his children. The snag is the Dower Act of Alberta.

The Dower Act gives the wife the right to live in the house for the rest of her life. This right arises because they are legally married (the same right does not apply to common law couples) and they live in the house as their "matrimonial home". The husband suggested that in his Will, he would leave the house directly to his kids, thereby avoiding the Dower Act, but that would be ineffective. If he does leave it to his kids, they will only receive the property after her Dower Act rights expire (i.e. when she passes away). Until then they will have to wait.

A person is able to waive his or her rights under the Dower Act. Therefore if this couple really has agreed to the division of property that the client has described, then it would probably be a good idea for the wife to sign a waiver of her rights. In fact, the Dower Act has a regulation that sets out a form for doing so. If a waiver were to be signed, the husband could then make a Will leaving the house to his children.

When I advised the client of his position, he wasn't happy. He hadn't realized there would be a problem. However, I thought it was fortunate that he found out now that his plans wouldn't work, rather than his children finding out after he had passed away.

Watch for me on Global TV in Calgary

Having been interviewed on Global TV in Edmonton (twice) and Vancouver, I suppose it was just a matter of time before I was invited to Global TV in Calgary. I am very pleased to say that Ièll be appearing on Global Calgary on Friday, November 13. Good thing Ièm not superstitious! Keep an eye out for me early that morning, talking about estate planning and incapacity planning.

Giving away your personal belongings

A question that I am asked pretty often is whether a person should list items in a will that they want to give to specific people. The question is about personal belongings like jewelry and family heirlooms.

There are a number of home-made ways that people use to direct who should have certain items after they have passed away, none of which are legally effective. One of the most popular ways is to stick a piece of masking tape on the back of each item and write somebodyès name on it. As I said, this is widespread but not legally effective.

There are two general ways in which you can leave your personal items to certain people. One is by naming them in your will and the other is by leaving a memorandum ( or list) in addition to your will. There are pros and cons to both choices and ultimately the decision is yours as to which method you think is most effective.

If you name the specific items and the specific people in your will, the upside is that the gifts are as legally binding as the rest of your will. The downside is that if you want to change your mind because you no longer own the item or you no longer want that specific person to receive it, you have to change your will. If it happens frequently, it can be expensive and inconvenient.

If you use a list- legally called a Memorandum of Personal Effects - the upside is that it is quick and easy to change it whenever you want to. The downside is that a Memorandum is not legally binding the way a will is.

A Memorandum is intended to be used for household and personal goods (jewelry, artwork, photo albums, heirlooms, furniture, collections, and any items with sentimental value). It should not be used to give away money or land.

If you need to know more about using a Memorandum, discuss it with your estate planning lawyer. Talk about which method (i.e. will or memorandum) would be more suitable for you.