Case Study Series Two

True Peace of Mind

This short three part case study series changes angles to look at what is possible for families and business owners with the right professional estate planning advice.

 

 

Tom was at his high school reunion where he got drunk on warm beer and camaraderie. While attempting his best daggy dance, Tom fell down some stairs breaking his neck. Thankfully for his family, the shock and grief caused by his unfortunate and foolhardy death was not his final legacy to them. His final legacy was in fact born three years before his death when he and his wife Mary took the necessary and responsible step of   seeking professional financial advice. 

 

Unlike the previous case study series which looked at the terrible results of a family who relied on no financial or estate planning advice, in this new case study series we will explore the positive benefits that professional financial and modern estate planning advice can provide family members following the death of a loved one. This is a sad story that has a positive ending …Tom’s daggy dancing death notwithstanding.

 

The Circumstances

 

  • Tom, 52, is co-owner of a profitable chain of pool shops with his brother Bill. 

  • Mary, 48, part-time online retailer, charity worker and mother.

  • Tom and Mary have three children Jack 23, Jane 20, Susan 18.

  • Jack and Jane are at university, while Susan is working part-time.

  • Tom and Mary have two properties, one in Sydney and one in Mary’s hometown in LA.

 

Issue 1: Business Succession Planning

 

Thankfully for Tom and Mary, their financial adviser did more than get their investments, super, insurance and finances in order. The adviser also introduced them to RetireLaw for strategic estate planning advice and documentation. Apart from the many core tax and asset protection benefits of modern estate planning, RetireLaw solicitors instantly recognised that Tom’s 50% share in the pool shop chain needed protecting, especially as Tom and his brother Bill had not got around to having a formal buy/sell agreement in place. While Tom and Bill’s relationship was on good terms, Mary and Bill had a falling out some years earlier which had left their relationship extremely strained. The solution was to include in Tom’s Will a business succession trust ‘safety net’.

 

Once RetireLaw solicitors were provided with a clear idea of the extent of the pool business interests, they discussed with Tom and Mary what they would like to see happen to the business in the event of Tom’s premature death. Working with Tom and Mary’s professional adviser, they explored a range of options for how the business might be retained for the family’s medium to long term benefit.  Often, when a business partner dies, the family of the deceased may not have the knowledge or experience to decide what should happen to a valuable business interest. Even if family members have a sound understanding of the business, they may not be in the best position emotionally to deal with complex decisions about the future of the business that will maximise benefit to the family. Also, even if a buy/sell or shareholders agreement is in place, problems can arise where the life cover has not kept pace with the value of the business, leaving the family of the deceased partner under compensated for their share of the business.

 

First, they act as a safety net so that the family of the deceased stake-holder will not be disadvantaged if left to deal with a significant business asset that they may be unfamiliar with. This is particularly useful in cases where a buy/sell or shareholder agreement had not been formalised. Secondly, a well drafted Will with business succession provisions offers a much smoother and financially beneficial transfer of business assets from one generation of the family to another with no capital gains tax implications. Further, such an approach provides significant asset protection opportunities as testamentary trusts are given privileged status by the Tax and Bankruptcy legislation and by Family Court practice.

 

Considering Mary’s strained relationship with her brother in law Bill, the business succession trust provided by Tom’s Will gave Mary the time, direction, confidence and security to deal with Tom’s unexpected death without detriment to the potential future benefit of her inherited business assets.

 

At RetireLaw we recommend that our modern estate planning Wills include separate testamentary trusts dealing with business assets such as companies, trusts, real estate, stock or intellectual property. A testamentary trust is simply a trust created by a person’s Will that enjoy special advantages. The trustee for the business assets is appointed by the Willmaker (Tom), and is usually Tom’s executor, in this case Tom’s spouse Mary, and often includes a co-appointee should Mary be unfamiliar with the business. For there to be an effective and readily managed trust in Tom’s Will, special provisions are included in the trust terms embedded in his Will to provide guidance for Mary so as to ensure maximum flexibility and control over the business interests and their future. In effect, the detailed terms of the testamentary ‘business interest’ trust allow Mary to take time deciding the business’s future. This may include “grooming” the business for sale over the next year or two, or simply building on the work of the deceased owner to ensure continued benefit from the business to the family over the long term. Such ‘business succession’ or ‘business interest trust’ provisions in a modern Will serve two highly useful functions.

 

First, they act as a safety net so that the family of the deceased stake-holder will not be disadvantaged if left to deal with a significant business asset that they may be unfamiliar with. This is particularly useful in cases where a buy/sell or shareholder agreement had not been formalised. Secondly, a well drafted Will with business succession provisions offers a much smoother and financially beneficial transfer of business assets from one generation of the family to another with no capital gains tax implications. Further, such an approach provides significant asset protection opportunities as testamentary trusts are given privileged status by the Tax and Bankruptcy legislation and by Family Court practice.

 

Considering Mary’s strained relationship with her brother in law Bill, the business succession trust provided by Tom’s Will gave Mary the time, direction, confidence and security to deal with Tom’s unexpected death without detriment to the potential future benefit of her inherited business assets.

CASE STUDY 2.1

 

Business Succession Planning 

From 'Dying To Get Her Message Across'

Contact RetireLaw Today

 

There is no cost to find out exactly what tailored legal strategy your estate plan needs to meet your wishes, circumstances and objectives. 

Phone     02 8908 9700
Email      dwong@retirelaw.com.au

Email      tpurcell@retirelaw.com.au

 

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