Do you have a business that is crucial to the future of your loved ones? In the absence of a formal business succession agreement being in place, the inclusion of RetireLaw's business succession planning 'safety net' provisions in your Will can provide loved ones with the time, strategy and guidance required to make the best decisions regarding the future of a significant business asset.
Business Succession Planning
A 'Safety Net' For Your Valuable Business Asset For The Ones You Love
Do you have a business exit strategy?
Australian research shows that only a very small minority of business owners have a strategy in place. Typical of such strategies where there are multiple non-family owners are shareholder agreements, or more commonly buy/sell agreements which are usually underpinned by life insurance policies.
However, problems can arise following the untimely death of a business partner 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.
Understanding your business
Once we have a clear idea of the extent of the business interests, we discuss with you what you would like to see happen to the business on your death. Working with your accountant or professional adviser, we explore a range of options for how the business might be retained for the family’s medium to long term benefit.
The Business Succession Trust Safety Net from RetireLaw
A trust is fiduciary relationship whereby an individual, corporation or association (the trustee) holds assets for another party (the beneficiary).
The trustee has the legal authority and duty to make decisions regarding financial matters on behalf of the other beneficiaries of the trust, usually family members.
At RetireLaw we recommend that our modern estate planning Wills include separate testamentary trusts, dealing with private assets such as the family home on the one hand, and dealing with business assets such as companies, trusts, real estate, stock or intellectual property on the other. A testamentary trust is simply a trust created by a person’s Will.
RetireLaw recommends that the beneficiary inheriting private assets is the trustee of the trust for such assets. The trustees for the business assets are also appointed by you, and usually includes your executor, normally your spouse or partner, and as well as a professional adviser should your spouse or partner be unfamiliar with the business.
For there to be an effective and readily managed trust in the business owner’s Will, special provisions are included in the trust terms embedded in the Will to provide guidance for the executors so as to ensure maximum flexibility and control over the business interests and their future. Testamentary trusts enjoy special advantages under tax legislation.
Why have trust provisions?
Often, when a business partner dies, the family of the deceased may not have the knowledge or experience to decide what should happen to the inherited 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. In effect, the detailed terms of the testamentary ‘business interest’ trust allow the trustees 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.
Firstly 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, effectively shielding business inheritances from the impact of common family occurrences such as divorce, bankruptcy and disability.
Dawn Wong & Terry Purcell of RetireLaw Pty Ltd
Initial Consultations Are Complimentary
Clients wishing to proceed with the RetireLaw service then meet with either Terry Purcell or Dawn Wong once more to have their Wills and associated legal documents fully explained, legally signed and witnessed.
Complimentary Ongoing Support
The only reasons that you will ever need to update your RetireLaw Wills are if you get divorced, or if your asset portfolio changes radically i.e. additional discretionary trusts.
However, an integral part of the RetireLaw Estate Planning Service is the provision of free ongoing support to help you ensure future legal and financial decisions are Estate Planning ‘friendly’, and do not compromise your long term plans.