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succession planning: why you need more than a will

30 April 2021
cathy russo candice etherton
Read Time 4 mins reading time

No one likes to think about death. It is an unpleasant and morbid topic. However, it is one of the certainties that we all face in life and if given a choice, most of us would agree that we would like to have some control over ensuring the people we love and care for receive the benefit of our labour during life.

so what if I don’t have a will – my family will still receive my assets won’t they?

If you die intestate (without a Will), your estate can only be administered by applying to the Court to obtain ‘letters of administration’. There is an order of priority set out in the Court rules as to who can apply for ‘letters of administration’ starting with spouse, then children and so forth and then a default order of distribution of assets, starting with spouse and kids. It sounds simple right?

We have seen recent cases where it is not as simple as that. For example:

  • The family of the deceased contested whether the ‘spouse’ was in fact the spouse at the time of death;
  • Many happily married couples would choose to simply leave their assets to their spouse in the first instance and not have a significant share of their wealth held up on trust for minor children;
  • Applying to the Court for letters of administration can be time consuming and costly.

most of my assets are in super and I’ve got it covered – I’ve told the trustee who should receive my super

Nowadays, a lot of family wealth is held ‘outside’ the personal estate and in particular, in industry superannuation funds. If you die intestate, and don’t make a valid binding nomination, the trustee of the superannuation fund gets to decide who receives your benefits. Dependants who are eligible to receive benefits include spouses, de facto spouses, children including step-children and any other person in an interdependency relationship.

You may think you have completed a binding nomination but too often we see invalid nominations. For example:

  • You can only nominate dependants under Superannuation laws (e.g. children and spouses) or your legal personal representative (estate). If you nominate a parent, sibling, or grandchild, the nomination may be invalid.
  • The nomination may not be binding or may be incorrectly completed.
  • The nomination may have lapsed.

what’s going to happen to my business?

This is a very good question and one that is often overlooked in the estate planning process.

Nowadays businesses are normally run through companies or trusts and usually with one or a number of co-shareholders.

For family trusts, it is absolutely critical that the person who succeeds to control that trust (who will then have the power and discretion as to who receives the benefit of income and capital) is the person that the deceased intended. This requires a proper review of the trust structure and terms of the trust deed.

For companies, inadequate estate planning can result in the continuing shareholder being locked in business with the estate of its former, now deceased shareholder, or the estate of a deceased shareholder having no director representative on death of a former director. All businesses should consider securing insurance for key shareholders to fund the exit of deceased shareholders with a binding buy/sell put in place to compel this result.

We have seen many examples of poor succession planning which has led to:

  • Only one of a number of natural children (that is, the child that was involved in the business with the deceased) left to control family trusts and legally able to direct 100% of the income and capital to themselves.
  • Companies funding insurance for key persons with no or inadequately drafted buy-sell agreements in place.

benefits of having a proper succession plan

A proper estate plan achieves the following:

  • Keeps family assets in the family and ensures that you decide who receives the assets;
  • Ensures no unforeseen tax consequences;
  • Estate protection (e.g. ensuring protection against bankruptcy of beneficiaries);
  • Protects a beneficiary’s inheritance if their relationship fails;
  • Minimises the risk of any claims against your estate;
  • Planning during life for an enduring power of attorney who can make decisions for you if you are unable; and
  • Planning during life for retirement or business exit, addressing disputes and operation/succession of the business in the event of illness or death.

At the bare minimum, we recommend the following ‘Golden Rules’:

  • Get a Will and update it regularly;
  • Ensure you put a binding death nomination in place for super;
  • Keep your family informed about your choices;
  • Have a business succession plan for companies and trusts;
  • Implement it and review regularly;
  • Make changes as circumstances change; and
  • Get advice from professionals.

If you would like to discuss your Will/estate plan, please reach out to our Private Clients team who have extensive experience in this area.

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succession planning: why you need more than a will

30 April 2021
cathy russo candice etherton

No one likes to think about death. It is an unpleasant and morbid topic. However, it is one of the certainties that we all face in life and if given a choice, most of us would agree that we would like to have some control over ensuring the people we love and care for receive the benefit of our labour during life.

so what if I don’t have a will – my family will still receive my assets won’t they?

If you die intestate (without a Will), your estate can only be administered by applying to the Court to obtain ‘letters of administration’. There is an order of priority set out in the Court rules as to who can apply for ‘letters of administration’ starting with spouse, then children and so forth and then a default order of distribution of assets, starting with spouse and kids. It sounds simple right?

We have seen recent cases where it is not as simple as that. For example:

  • The family of the deceased contested whether the ‘spouse’ was in fact the spouse at the time of death;
  • Many happily married couples would choose to simply leave their assets to their spouse in the first instance and not have a significant share of their wealth held up on trust for minor children;
  • Applying to the Court for letters of administration can be time consuming and costly.

most of my assets are in super and I’ve got it covered – I’ve told the trustee who should receive my super

Nowadays, a lot of family wealth is held ‘outside’ the personal estate and in particular, in industry superannuation funds. If you die intestate, and don’t make a valid binding nomination, the trustee of the superannuation fund gets to decide who receives your benefits. Dependants who are eligible to receive benefits include spouses, de facto spouses, children including step-children and any other person in an interdependency relationship.

You may think you have completed a binding nomination but too often we see invalid nominations. For example:

  • You can only nominate dependants under Superannuation laws (e.g. children and spouses) or your legal personal representative (estate). If you nominate a parent, sibling, or grandchild, the nomination may be invalid.
  • The nomination may not be binding or may be incorrectly completed.
  • The nomination may have lapsed.

what’s going to happen to my business?

This is a very good question and one that is often overlooked in the estate planning process.

Nowadays businesses are normally run through companies or trusts and usually with one or a number of co-shareholders.

For family trusts, it is absolutely critical that the person who succeeds to control that trust (who will then have the power and discretion as to who receives the benefit of income and capital) is the person that the deceased intended. This requires a proper review of the trust structure and terms of the trust deed.

For companies, inadequate estate planning can result in the continuing shareholder being locked in business with the estate of its former, now deceased shareholder, or the estate of a deceased shareholder having no director representative on death of a former director. All businesses should consider securing insurance for key shareholders to fund the exit of deceased shareholders with a binding buy/sell put in place to compel this result.

We have seen many examples of poor succession planning which has led to:

  • Only one of a number of natural children (that is, the child that was involved in the business with the deceased) left to control family trusts and legally able to direct 100% of the income and capital to themselves.
  • Companies funding insurance for key persons with no or inadequately drafted buy-sell agreements in place.

benefits of having a proper succession plan

A proper estate plan achieves the following:

  • Keeps family assets in the family and ensures that you decide who receives the assets;
  • Ensures no unforeseen tax consequences;
  • Estate protection (e.g. ensuring protection against bankruptcy of beneficiaries);
  • Protects a beneficiary’s inheritance if their relationship fails;
  • Minimises the risk of any claims against your estate;
  • Planning during life for an enduring power of attorney who can make decisions for you if you are unable; and
  • Planning during life for retirement or business exit, addressing disputes and operation/succession of the business in the event of illness or death.

At the bare minimum, we recommend the following ‘Golden Rules’:

  • Get a Will and update it regularly;
  • Ensure you put a binding death nomination in place for super;
  • Keep your family informed about your choices;
  • Have a business succession plan for companies and trusts;
  • Implement it and review regularly;
  • Make changes as circumstances change; and
  • Get advice from professionals.

If you would like to discuss your Will/estate plan, please reach out to our Private Clients team who have extensive experience in this area.