Dividing an estate is challenging. Dividing non-divisible assets—those that cannot easily be split, such as a family business, artwork or real estate—is even more complex.
For many wealthy families with significant holdings such as business interests, car collections or multiple properties, estate planning can quickly become complicated, especially without clear intent, thorough documentation and transparency regarding the founder’s wishes. Without these elements, families risk disputes, unexpected tax exposure and costly litigation.
This is why family offices must address the complexities of non-divisible assets early in the planning process.
Althea Yip, partner at the law firm Loopstra Nixon LLP in Toronto, says she frequently sees families struggle with how to divide a business after a founder’s death.
“It’s not easy to divide a business,” she says. “A lot of times that asset could represent 90 per cent-plus of the assets of the individual, and that could be a very big problem intergenerationally. Because how do you deal with that?”
Other assets—such as guitar collections, jewellery or artwork—present similar challenges. According to Yip, there is rarely a single correct approach to dividing these items; instead, creativity is needed.
“A lot of times there has to be a settlement,” she says. In other cases, a timeshare or co-ownership arrangement—particularly with real estate—may be appropriate.
“From a tax perspective, what we’re trying to do in respect of that arrangement is we’re trying to get fairness between the beneficiaries,” she says. “How do we get money elsewhere to satisfy the hole that’s left by what is not equal?”
Creating a comprehensive estate plan requires advisors to consider not only the value of a family’s assets but also how the family functions and interacts. A thoughtful action plan typically incorporates several key strategies.
Determine the client’s wishes
One of the most difficult questions clients face is defining their goals. “‘What is your intent?’” asks Yip.
Often, clients are uncertain, or their intentions evolve over time. “A lot of people don’t revisit their trust or their estate planning or their personal wealth management often enough that they are capturing that in their most up-to-date plan,” she adds.
Include specific clauses
Because intentions can shift, advisors should encourage families to clearly and transparently specify how non-divisible assets should be handled in their wills. This may include right-of-first-refusal clauses, which allow a beneficiary to purchase a specific asset from the estate at fair-market value, says Holly LeValliant, an estate and trust consultant at Scotiabank in Toronto.
Alternatively, a will may include a hotchpot clause, which requires gifts given during a beneficiary’s lifetime—such as funds to purchase property or start a business—to be brought back into the estate’s value before final division.
“This allows the recipient’s share to be reduced, ensuring that the other beneficiaries receive compensation or assets without the need to sell a particular asset,” LeValliant says.
Maximize tax efficiency
Tax planning plays a critical role in accounting for indivisible assets. For properties such as cottages or secondary residences, certain rollover provisions may apply for spouses or common-law partners when assets are transferred, says Yip. These provisions can result in significant tax deferrals, as taxes are postponed until the spouse disposes of the asset.
“A lot of times there are incentives, such as the lifetime capital gains exemption, which we can potentially use again, depending on the qualification of the business,” she says.
Make liquidity a priority
Ensuring sufficient liquidity within the estate is another critical consideration. Non-divisible assets can tie up significant value, leaving insufficient funds to support dependants or pay taxes. This may force the sale of assets the family intended to retain, says LeValliant. Strategies to enhance liquidity can include insurance planning or strategic charitable giving.
Be as specific as possible
Precision in drafting charitable gifts is important. Yip cautions against formulaic approaches when making charitable donations through a will. Because business values fluctuate, specifying a fixed dollar amount rather than a percentage can reduce ambiguity and prevent disputes.
“Is that per cent after the estate has paid taxes or before the estate has paid taxes?” she asks. “Generally, there could be an argument about how the calculation is made to get to the per cent, as opposed to having a cheque for X dollars—then there’s no dispute about what that dollar value is.”
Manage family dynamics
Co-ownership arrangements—such as shared ownership of a family cottage—can preserve assets but introduce new risks, including disputes over usage, maintenance costs and repairs. To mitigate these issues, LeValliant recommends that advisors help families establish clear rules around expenses and property use. In some cases, appointing a corporate executor as a neutral third party can help prevent conflict.
Anticipate changing asset values
Valuing indivisible assets can be difficult, particularly when values change over time. When executors assess assets for probate purposes, “it may be difficult to know if a prospective business valuation, for example, is accurate,” says LeValliant.
To anticipate potential challenges, she recommends that advisors develop a deep understanding of each asset and proactively identify issues that beneficiaries or executors may face. Facilitating family discussions about indivisible assets can also bring concerns to light early in the process.
Matthew Rendely, partner and co-lead of the estate litigation practice at Loopstra Nixon in Toronto, says disputes often arise when asset values change, gifts fluctuate in worth, or charitable organizations cease to exist. A shifting charitable landscape can also create legal challenges.
“Let’s say the testator has made a gift to a charity that no longer exists,” he says. Problems may also arise if a charity’s registration number is missing from the will or if the size of the donation is unclear.
In such cases, Rendely may need to represent families in court to redirect the donation to an alternative charity. Otherwise, the estate may lose the intended charitable benefit.
To avoid this outcome, he advises meeting with a lawyer to ensure charitable gifts are clearly and properly documented. “Just because they’ve put a donation in their will doesn’t mean it’s a slam dunk.”
Anna Sharratt is a business and health reporter and editor with more than 20 years of experience. Based in Toronto, she has written for Canadian Family Offices since 2021. A regular contributor to the Globe and Mail, she has written for Inc.com, Forbes, Business Insider, Canadian Business, MoneySense, the National Post, The Toronto Star and other publications. She is the former managing editor of smallbiz.ca, health editor of Chatelaine and senior health writer for the CBC.
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