Nobody likes to think about it, but it's inevitable - one day we leave everything behind. A good estate plan protects the future interests of your family and business partners.
What is Estate and Succession Planning?
An estate plan is essentially a plan about a person's estate (property and assets).
A succession plan is an estate plan, which includes plans for succession (our 'successors' are those who 'succeed' to our estate).
Both types of plan can be an extension of a business plan.
What is an estate plan?
Why do I need one?
How do you go about putting together and maintaining an estate plan?
Estate planning is not just about having a Will. It involves the review and management of your personal, family and business affairs while you are alive as well as developing a strategy to deal with your assets after you die. This includes the legal instruments and structures you put in place to transfer your assets in the event of your death.
An estate plan is necessary to ensure your assets go exactly where you wish them to go & should consider:
your current lifestyle needs
your business arrangements
your tax position
trigger events such as marriage or commencement of a de facto relationship, divorce or the end of a de facto relationship
when families blend
when a spouse dies
on commencing the pension phase
health concerns of you or family members
existing or potential family disputes
Our succession planning team works with you, your accountant and financial advisors (if required) to review your financial and personal circumstances and then decide on the most appropriate estate planning strategy for you.
Your estate plan will include:
Asset IdentificationIdentification of personal assets and assets owned jointly, or owned by trusts or companies
Risk IdentificationIdentification of potential risks e.g. health issues, business viability, estranged family members, bankruptcy of a beneficiary
Advisory TeamCoordinated involvement of your financial planning and accounting advisers.
Plan Design and ImplementationIncorporating all assets, flexibility for future changes, risk and tax minimisation and succession issues.
What is asset protection?
Why should it form part of my succession plan?
What structures provide for asset protection?
Our society is becoming increasingly litigious. If a business or rural enterprise is carried on in the same name as the assets are held, then all of the assets will be ‘at risk’ if there is a liability action. Asset protection is ensuring the assets are 'off risk'.
Asset protection strategies are also applied to protect and preserve your beneficiaries' inheritance. This may be required because a beneficiary is a minor, is incapacitated or may have a former spouse who seeks to make a claim on their inheritance.
To cope with all the likely factors and events, it may be necessary to create different structures, such as companies, discretionary trusts and self-managed superannuation funds. However, the use of these structures may complicate the estate plan. Where these structures are purely tax-driven and succession is overlooked, greater difficulties can occur, leaving fertile ground for dispute in the next generation. Many advisers overlook the fact that the assets of a discretionary (“family”) trust or superannuation fund cannot always be left by a Will.
One structure used to protect and preserve your wealth when planning your estate is a ‘testamentary trust’. It is a trust established under a Will but it does not come into effect until after the death of the person making the Will.
The benefits of a testamentary trust are:
Relationship BreakdownA properly drafted testamentary trust can provide a level of protection from the risk of relationship breakdown
High Risk BeneficiariesAn intended beneficiary is in a high risk profession or business where negligence claims are likely
Tax Advantaged StructureA testamentary trust is subject to special tax rules, particularly where children under 18 are beneficiaries of the trust.
Creditor ProtectionTo protect the inheritance from creditors of a beneficiary
It is important however to remember that a testamentary trust is part of a Will and therefore does not protect your estate from challenge. As part of the estate planning process we can advise you on strategies that will protect your estate from challenge taking into account the potential tax and duty consequences of any such strategy.
A goal without a plan is just a wish.
Rural succession planning involves having a living and dynamic plan which can change with circumstances.
It must also be part of the overall business plan.
Primary producing parents facing succession planning difficulties, often find it confusing because there seems to be so many issues which they are confronted with and it is often difficult to separate them, much less prioritise them.
However there is a simple set of clear priorities:
The need of the parents for economic, financial stability and security must always be paramount and must not be compromised.
A viable business opportunity for the children wanting to come onto the property, must be available.
Knowing what the assets and liabilities are that are within the family's reach.
A reasonable assessment of future opportunities.
As early as possible, parents need to start building up off-farm assets for themselves.
Having sufficient off farm assets to support parents in retirement increases the likelihood of being able to provide the next generation with a viable business opportunity on farm.
A rural succession plan should include structures which minimise the effect of income tax, capital gains tax and stamp duty, not only on a year by year basis, but also on a ‘transactional’ basis when children are brought into ownership of part or all of the farming entities. Tax minimisation involves taking steps which the legislation itself encourages or legitimately allows to minimise the effect of taxation.
Planning for tax minimisation should be kept in perspective with the whole range of rural succession factors and events which must be planned for.
Whether you leave your business for professional or personal reasons, make sure you plan ahead.
A business succession plan is a blueprint for you to exit your business
Your exit strategy should be planned well in advance and ideally at start-up
A good succession plan should cover:
when you plan to exit the business
who the business is being sold to or who will take it over, either an external third party or sale of equity to existing proprietors
whether you choose to sell all of the business or sell down gradually
any tax and legal implications
sale of business to external third party
family business transition to next generation
dealing with business/equity share of deceased proprietor
Every succession plan is different, as each business has a different set of circumstances, which need to be taken into account, such as type of business, any existing business structures, number of proprietors, market factors, skills and personalities of owners, staff and family members,
Exiting your business may be due to a voluntary event such as sale or retirement, but it can also occur because of an involuntary event such as death, illness or disability.
Planning ahead and getting smart legal advice, will ensure you have the most options available on exit, minimise tax and give your business partners, family members and personal goals the best chance of success.
Check our events pages to see if there are any upcoming seminars about succession planning.
Meet the specialist lawyers in our Succession Planning team who are passionate about solving your succession issues.
Download our free rural succession booklet or read our lawyers' latest, blog posts for succession insights.