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Chapter 5:
Protecting your legacy through estate planning
Chapter 5:
Protecting your legacy through estate planning
Most family business owners have very admirable intentions when it comes to planning for the future of their business and family. Understandably, they want the best for both and often work exceptionally hard to achieve it.
This is why it’s never easy when we, as advisers, see these intentions fall apart due to one missing element: proper estate planning. Something unexpected happens – like a relationship breakdown, injury, illness, cognitive decline or death – and even the best laid plans can unravel very quickly.
Estate planning comprises more than a Will (and certainly more than a DIY Will purchased at the local newsagency or off the internet).
Depending on how your business and wealth are structured, there are a number of legal documents that may
be needed to ensure your wishes are carried out exactly as you intended.
Even if it’s uncomfortable to plan for, these situations are inevitable at some stage. Avoiding the conversation won’t change the outcome, and can even lead to situations you would never choose had you been given the chance.
Consider the following scenarios:
You pass away suddenly without a Will, and you leave your estate intestate. Your spouse and children are left in limbo, unable to access bank accounts or assets in your name until the court process is finalised. In the meantime, they struggle to meet everyday expense
You’ve set up a discretionary family trust to hold either valuable business or investment assets, but you pass away without leaving a Memorandum of Wishes or dealing with the succession of the discretionary trust. The new trustee is now left to interpret your intentions without guidance, and distributes assets in a way that causes your family confusion and disappointment.
You suffer a stroke, but because you don’t have an Enduring Power of Attorney in place, no one can legally make financial decisions on your behalf. Business and personal bills go unpaid, important decisions are delayed, and by the time you recover the business is gone and your family is in debt.
You co-own a business with a long-time friend and always intended for them to have the first option to buy your shares if something happened to you. But without a shareholders’ agreement in place, your shares pass directly to your family after your death. With no buyout terms documented, your business partner is forced into ownership with your family – something no one wanted.
So how do you avoid these scenarios happening to you, your family, and you business?
Only with proper estate planning.
Estate planning essentials
According to RSM’s succession specialist, Andrew Marshall, the fundamentals of good estate planning are simple, straight-forward, and too often overlooked. They include…
STEP 1:
Understand your structures
A good estate plan starts with a clear understanding of the way your family business is currently structured.
This directly affects how your estate planning should be organised and the types of documents you need in your estate plan.
Before anything else, it’s essential to get a handle on your structures and how things are currently owned. Do you own your property or is it held in a trust? Are your shares in the company held personally, or through another entity? Do assets sit across multiple entities and, if so, who controls each one?
Your estate plan must cover these specifics, so decisions fall to the right people at the right time.
Remember, not everything is covered by a Will. For example, all of these key issues sit outside the scope of a standard Will:
- who takes control of the family business
- who takes over as trustee of the family trust
- who can act on your behalf if you lose capacity
STEP 2:
Involve your accountant
Your accountant is usually the only person who truly understands the full financial picture of your family business:
entities, structures, ownership, and the intent behind them.
Accountants work with clients regularly, so they have ongoing insight into both the business and family dynamics.
They typically know where assets are held and how they’re structured more accurately than the business owner themselves.
This is why it’s imperative to have your accountant engage directly with your lawyer when drawing up your Will and
other estate documents.
Your accountant will make sure everything’s covered and your plans are written the way you actually intend.
STEP 3:
Get the right documents in place
The three key documents every family business owner should have drawn up by an experienced estate planning lawyer and accountant are:
1. A Will
2. Enduring Power of Attorney
3. Memorandum of Wishes
Beyond these, other forms of coverage you may wish to consider include:
- Insurance – as a safety net for your family, or as a strategy to carry out a buy/sell arrangement for a business partner in the event of death or injury.
- Binding financial agreement – to protect family wealth in the event of separation or divorce.
- Constitution – sets out clear rules for how your company is managed, how decisions are made, and how its structure operates.
- Trust deed – specifies how the trust should be managed and the obligations between the trustee and beneficiaries.
- Shareholders or unitholders agreement – sets out the rights, responsibilities, and arrangements between
shareholders or unitholders. - Partnership agreement – a formal contract between business partners that outlines the terms, responsibilities,
and procedures for managing the partnership (including resolving disputes - Buy/Sell deed – outlines the terms between business coowners for buying out another owner’s interest in the event of certain triggers (such as death, disability, or retirement).
STEP 4:
Review regularly
One of the biggest mistakes business owners make is thinking estate planning is a one-off task.
You might have put a plan in place five or six years ago, but if the business has changed or the family dynamics have shifted, that plan could be completely irrelevant now.
Let’s say you plan for one child to take over the family business, but your old estate plan still names all your children as successors. If something happens to you, your family could be left unsure of what you really wanted and forced to navigate the details themselves while also dealing with their grief.
Or perhaps you create a legal agreement with several partners at the start of your business journey, and the relationship with one partner breaks down over time. Without updating the agreement, you risk costly legal battles where the only real winners are the professionals you have to pay to resolve the issue.
To avoid diminishing wealth due to disputes, and ensure your current wishes are fully understood, it’s essential to review and update all legal documents to reflect any significant changes in your business or family circumstances.
Your legacy is your story
More than preparing for illness or what happens after you’re gone, estate planning can also be about making thoughtful decisions for the present.
For example, retirement can be the perfect time to start sharing wealth with loved ones, such as:
- helping children buy a home
- supporting grandchildren’s education
- enjoying memorable experiences together
If you’re considering transferring wealth during your lifetime, you’ll want to find the most tax effective and practical way to do it. Everyone’s situation is unique, so the right approach really comes down to what’s best for you and your family.
This is also why it’s a good idea to sit down with your accountant and lawyer in unison for advice. By working together, they can help you document your intentions clearly and ensure your wealth is shared in a way that’s financially sound and aligned with your vision – both now and into the future.
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