As financial advisors, we spend years working closely with clients to help them build a po...
%20(1).svg "Frame (18) (1)")
.svg "Close (1)")
Your personal estate protection plan is a "blueprint" outlining your objectives for your estate. Estate planning is more than just having a Will, particularly where you may control a business, company, family trust or self-managed super fund. It is about protecting your wealth and your family. A well thought out estate protection plan, transitions the right funds into the right hands, at the right time if you were to pass away.
Our role in estate planning varies depending on your needs and the complexity of your personal and/or financial situation. We work hand in hand with you and your solicitor to ensure the right outcomes are achieved.
We can:
We’re going to delve further into estate planning to help you make sure that you have this critical aspect of your wealth management appropriately structured. If you would like to brush up on your legal estate terminology, read through our Important Estate Terms flyer before we get started.
Everyone who has assets and/or children should have a Will. If you die without a Will in Queensland, known as dying intestate, then your assets will be dealt with by the Succession Act 1981 (QLD) and someone may have to apply for Letters of Administration to be able to execute your Will.
Anyone over the age of 18 who is of sound mind, memory and understanding can make a Will. The decisions you make in your Will must be made of your free choice and without pressure being exerted by anyone.
A Will is just another way of taking care of the ones you love.
It is important to understand what types of assets may be included in your Will.
| In the Will | Outside the Will |
| Assets you own yourself | Jointly owned assets |
| Life insurance owned by you with no beneficiary | Life Insurance (with another owner or beneficiary) |
| Super – where forced into the Will by a Binding Death Benefit Nomination | Superannuation – if no nomination, or nomination directing away from the Will |
| Shares in a private Company owned by you | Private Company assets |
| Appointor role in a Family Trust | Family Trust assets |
There are two main types of Wills:
Often called an ‘I Love You’ Will, this is a Will where couples generally leave assets to each other and then to children. They are simple and cheap to implement and usually suit a straightforward family situation or where asset values are lower. This type of Will does not provide asset protection or tax effectiveness.
A Testamentary Trust is a discretionary trust that can only be established by a Will. Testamentary Trusts offer enhanced security for the assets of your estate that is not available if they are simply distributed to your chosen beneficiaries.
The Will can specify the following in relation to the Testamentary Trust:
Testamentary Trusts are useful where:
Disadvantages include:
When preparing a Will many people mistakenly believe that everything that they own, or have an interest in, will automatically be covered and the estate distribution process will be a smooth one. Unfortunately, this isn’t always the case so it’s important to consider what assets make up an estate and more importantly talk about those items that don’t and what you can do to address these.
Let’s begin with what is often a person’s largest asset which is the family home and other real estate property assets. Whether these will form part of your estate or not is dependent on the way that they are owned. If you are the sole owner of a property, then these will form part of your estate upon death. If however, the property is owned in conjunction with someone else then it gets a little more complicated. Jointly owned property can either be held via joint tenancy or alternately as tenants in common, with each of these having a different impact on your estate planning decisions.
The most frequently used ownership structure within Australia is for a property to be held as joint tenants. In this scenario, the deceased person’s share of the property will automatically pass to the surviving owner so it will not form part of the estate or be dealt with within your Will. Ownership as tenants in common, on the other hand, means that the share of the property can be passed to another party, including to someone other than the joint owner. As a result, your share of the property does form part of your estate and it needs to be addressed in your Will.
Another important asset that forms part of your estate and needs to be taken into account in your Will is your personal possessions. These can include items such as jewellery, art, vehicles, bank accounts, collections or shares and managed fund investments, other than those held within superannuation, which we will discuss in more detail shortly. All these items form part of your estate and who will receive what can be detailed within your Will.
The benefit of providing directions for these items in some detail is that it will assist your executor in determining who will receive what from your estate. An example of this may be that you bequest that a particular piece of jewellery is to pass to a specific child or grandchild, or that stamp collection that took years to accumulate is to be passed on to a particular relative who will value it rather than put it up for sale on eBay the day after the funeral.
We mentioned that shares, managed investments and other financial investments will form part of your estate, however, it would come as a surprise to many that the investments that you hold within your superannuation fund do not. Contrary to popular belief the money held in superannuation is usually an outside estate asset unless you specifically direct your super fund to send the money to your estate. So, what happens to your super in the event of your death? Once the super fund has received the probate documentation the fund trustees will determine who has a claim on the money and will determine who gets what from there. The difficulty with this is that they will not have the insight into your circumstances that your executor is likely to have, which means the funds may not always end up in the hands of those you would like to receive them.
In order to overcome this and help the trustees deliver your funds to where you would like them to go, you should nominate a beneficiary on your superannuation account.
This can be done by a:
Whilst on the subject of super, a question we often get asked is what happens to life insurance that is attached to your superannuation fund? In the event that your super account has a life insurance policy attached to it the proceeds of that policy will be paid directly to your superannuation fund. This means that those funds do not form part of your estate unless you have nominated your Legal Personal Representative, that is your estate, as the beneficiary.
In contrast life insurance held outside superannuation may be passed directly to a specific beneficiary if they are nominated on the policy or to the estate if no beneficiary is nominated. This is an important area when considering your estate planning needs and you should consult with your insurance or estate planning professional to ensure the right steps are taken to get these funds into the right hands, at the right time.
An area often overlooked when thinking about estate planning is what happens if you are involved in a business or have a discretionary or family trust in place. Again, the outcome is determined somewhat by the structure used, but generally speaking, these assets need to be considered separately when preparing your Will. As an example, if a business is run as a private company then the ownership stake in that company is determined based on the shareholdings of its shareholders. If a shareholder passes away the Will needs to address where those shares get distributed, and this will ultimately determine who then controls the business into the future.
Similar complications arise when a person has assets that are held outside of Australia. Generally speaking, a Will only covers assets within the jurisdiction that the asset is held, so assets held in a foreign country will be distributed in line with the laws of that country. Establishing a Will in the country where the asset is held, whilst often time-consuming and logistically difficult, is a step that can provide sound estate planning outcomes. Another option that may be useful would be to establish an International Will. Whilst Australia is a participating country in the convention of providing a uniform law in the form of an International Will, there are few other countries that have also signed up to this convention, meaning its usefulness is somewhat limited at this time. On the positive side, New Zealand is one of these other countries and it is possible that additional countries will join the convention. Once again, we recommend that you consult with an estate planning professional to discuss this area if it affects you.
The final part of an estate is one that causes many families concern, and that is in relation to debts upon death. Unfortunately, death does not absolve someone from the liabilities that have been created over their life, however, those debts are restricted to the assets of the estate and in most circumstances, they are not payable by the surviving family. Should a person die owing funds to creditors the executor of the estate has an obligation to sell assets to meet those debts prior to any disbursements being made to beneficiaries. These debts are paid out in a hierarchy enshrined in legislation and the estate will receive the remaining assets or funds after these obligations have been met. Should an estate be unable to meet its debts these debts are usually forgiven unless a guarantee on the debt has been given by another party.
It’s vital to consider these issues when making your Will to ensure a smooth transition for both your executor and your beneficiaries.
Power of Attorney (POA) is a formal document that is a delegation of authority from one person (the principal) to another person (the attorney) allowing them to perform acts on behalf of the principal. There are two types of POAs:
You are able to appoint more than one attorney to act on your behalf. This is often done as a precaution where one attorney may be unable to act for you due to illness, death or absence. When appointing more than one attorney, you must give thought as to whether or not that authority is granted:
A person acting as your Enduring Power of Attorney, must avoid entering into transactions that may result, in their interests (or those of attorney’s relations, business associates or close friends) conflicting with your interests.
Having conflict wording within an Enduring Power of Attorney (EPOA) is a best practice provision strongly recommended by good solicitors. It is included in the EPOA to allow an attorney to act even where they may have an interest themselves in the transaction.
The most common scenario is where a husband and wife are co-owners of a property that they are selling. If, for example, the wife is incapacitated (including because she is travelling interstate), the husband can sign the paperwork for the sale using the EPOA. In this scenario, the husband has a legal conflict of interest in signing the property sale documentation on behalf of his wife (as well as signing for himself), because he is a co-owner of the property. Without a conflict clause included, he would not be permitted to sign the property sale documentation for his wife.
Other common conflict clauses may arise in circumstances where:
If a conflict clause is not included, the utility of the EPOA is significantly undermined and may cause significant issues in any of the above circumstances.
An Enduring Power of Attorney is a very important document.
Consider the following case study.
Jamie is aged 30 and married with a very young baby. He and his wife Clare jointly operate their bank account; however, Jamie owns their home in his own name as he had purchased the house prior to their marriage, with a very large mortgage on it. Jamie is away for work when he has an accident and is now in an induced coma. He is expected to recover, however, it may be a lengthy process. Jamie does not have an Enduring Power of Attorney because he thought it was something only old people needed to worry about.
Clare needs to claim the income protection insurance owned by Jamie’s Australian Retirement Trust Super Fund. She is unable to do this because she is not his Enduring Power of Attorney. Clare is also unable to negotiate with the Bank on getting the mortgage payments put on hold during this difficult time. Clare’s only option is to apply to the Queensland Civil and Administrative Tribunal to be appointed Jamie’s Administrator and Guardian. Clare is very stressed by the paperwork required and the time it will take before she can deal with their financial matters. Having an Enduring Power of Attorney would have allowed Clare to resolve these matters immediately on her own.
Application to Queensland Civil and Administrative Tribunal would be further complicated if other parties thought they had the right to perform the Administrator’s role. For example, consider the case of an aged parent where various adult children wish to perform the role.
Having a well-considered Enduring Power of Attorney means that you have made all of the decisions on who should take care of your personal/health and financial matters if you are unable to make the decisions yourself.
Most people believe that if they have an Enduring Power of Attorney, it will work for their duties as Director or Secretary of their Company. Unfortunately, this is not the case.
Therefore, you should consider General Powers of Attorney (POA) for Companies in which you are involved in because:
In modern Wills (please check you have a modern Will) testators who are also Directors will generally make an appointment of their Executor/s as replacement Director, trustees and/or Appointors who would then deal with the situation post-death.
However, a General POA can also be used to ensure the continued operation of a company after the death of a director, but before the Executor under the Will has had the opportunity to administer the estate. (This is very different to an EPOA which ceases on death).
Directors – John Smith and Ben Jones
Shareholders – Ordinary Shares – 108 Smith Trust and 12 The Jones Family Trust
The Constitution says the Office of Director becomes vacant on death, mental incapacity, or absent from meetings for 6 months.
While the Shareholders vote, it is the Directors who carry on the Company’s business, including borrowing, and other normal operations.
General POA is critical in a sole trader or two director company where every person is a “key person.” For sole traders, if the Director is away (whether on holidays or work trips) or loses the capacity to sign documents (due to illness or accident), the business could come to a grinding halt as no one is authorised to sign off on cheques or key documents, likely affecting the cash flow of the business. This may be a problem even for two director companies.
Section 127 of the Corporations Act1 requires two Directors or a Director and a Secretary of a company to execute documents. This means that if even one person loses capacity, the Company is powerless to sign documents or enter into agreements as the law requires a minimum of two signatures. A Company Power of Attorney can fix this problem.
This is different again as there are specific powers under the Superannuation Industry Supervision (SIS) Act 1993 to ensure that an SMSF doesn’t become non-complying simply because a member has lost capacity. In this case, under SIS s17(3) (b)2 the incapacitated person’s EPOA can become a director of the Corporate Trustee if the member is under a legal disability. Therefore for a Company that is only a Corporate Trustee of an SMSF, then a General POA is not needed as long as the member of the SMSF has an EPOA.
A person’s Enduring Power of Attorney cannot be used to sign documents on their behalf in their capacity as Director of a Company. An EPOA can be used for shareholder duties.
A General POA is granted by the Company. It can be tailored to say it is for a specific time period, for certain tasks or for all Director tasks. Based on this, it is appropriate for all Companies that have two or fewer Directors to appoint a general POA, and it should be considered for other Companies with greater numbers of Directors as well.
As always, having the correct legal documents in place will ensure the smooth operation of your Company, regardless of your capacity.
1 http://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s127.html
2 http://classic.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s17a.html
.jpg?width=1700&height=1133&name=shutterstock_1012340377%20(1).jpg)
Another step in the estate planning journey that is an important part of putting your mind at ease to ensure you won't become a burden on your family, is to consider your funeral expenses.
Funeral costs can range from as little as $4,000 for a basic cremation, to over $20,000 for a more elaborate burial. Determining factors of the cost include funeral directors fees, transport, permits, coffin options, choices between burial or cremation, a cemetery plot or urn, as well as expenses such as flowers, newspaper notices and the wake. The cost of a funeral that adequately celebrates a loved one’s life can be a cause of concern for the family, particularly at a time when they are likely to already be struggling through the grieving process. One way to alleviate some of this pressure is to pay for all or part of your funeral expenses ahead of time.
The simplest way is to set up a bank or term deposit account separate from your everyday account and make a lump sum or regular deposits to this account over time. Most Australian financial institutions allow access to a person’s account for payment of funeral expenses upon presentation of the death certificate and the funeral provider's invoice prior to probate being granted. Given that the granting of probate can take some time this is an important point to remember. An advantage of this method of saving for a funeral is that should the funds be required for a health or other emergency they are still available to be drawn upon.
Another commonly advertised option is to pay for your funeral in advance through your local funeral director. Similar to the previous option, you can pay via a lump sum or through a series of instalments. One of the key benefits of this approach is that the cost is generally calculated at today’s prices and they don’t increase over time. On the other hand, there is an added risk that the provider you select may go out of business or the plan may not cover you if you move or die interstate, so you should shop around and do your homework on these key points. This is particularly important as different funeral directors will offer different packages and the protection that they offer will differ from state to state.
Another option to consider is to use a funeral bond. This is a financial investment that again can be set up with a lump sum or added to along the way, however, rather than locking in the cost of the funeral now, the investment is designed to grow over time to ensure it keeps up with funeral costs as they rise with inflation. The maximum amount that can be contributed to a funeral bond and have concessions applied is set by the Federal Government on an annual basis. An added benefit of this structure is that if the investment grows to be more than the actual cost of the funeral that has been decided on by the family, the surplus funds are returned to the estate and can be distributed to the beneficiaries of the estate in line with the Will. The downside of both a funeral bond and a prepaid funeral is that once the funds are deposited they are locked in and unavailable to be withdrawn even if life throws you a curveball along the way.
A final option for those that may not have a lump sum available immediately is to consider funeral insurance. With funeral insurance you pay a monthly premium that will pay a pre-determined amount towards your funeral costs. Unlike the other options, we have discussed you are not pre-paying for your funeral, but purely buying insurance to meet those costs in the future. If you stop paying the premiums you will no longer be covered and you will lose the premiums that you have already paid. It is not uncommon for the premiums to cost more over your life than the amount paid out at the end, so you should carefully consider the other options available before taking out this type of insurance.
A final point to consider in all of the above strategies, is the impact that they may have on your Centrelink entitlements. These include:
Thinking about how your family would meet the costs of your funeral, and discussing the options with them, is another great step towards ensuring that you and your estate are financially organised ahead of time.
| Funding option | Set aside funds in a bank account | Pre-paid funeral | Funeral bond | Funeral insurance |
| Access to capital | Yes | No | No | No |
| Lump sum payment available | Yes | Yes | Yes | No |
| Regular contribution option available | Yes | Yes | Yes | Yes |
| Favourable Centrelink assessment | No | Yes | Yes | No |
Superannuation does not form part of your estate, and is not dealt with under your Will (unless the necessary steps are taken within your superannuation fund.)
The Trustee of your super fund ultimately decides where your superannuation benefits will be paid. You are typically able to make two types of nominations to the trustees to instruct them of your wishes:
In most cases, a BDBN will need to be signed by the member of the super fund and witnessed by two independent people aged over the age of 18 years. It is important to note that super funds may have different rules applicable, so you need to consult your super fund to ensure that you are following the required steps to put a BDBN in force.
For some super funds, if your personal circumstances change, your non-lapsing nomination may become invalid. This means that in the event of your death, the trustees may disregard your nomination and pay your death benefit to another beneficiary, at their discretion.
If you have a significant change to your personal circumstances, you may need to complete a new BDBN, even if you don’t wish to change your nominated beneficiary and simply wish to reaffirm your previous nomination.
Examples of significant changes to your personal circumstances are if you:
BDBN's give you certainty in ensuring that your super benefits are paid in accordance with your wishes in the event of your death. This is important for your peace of mind.
The super fund trustee is bound by your BDBN so it can reduce the flexibility in how your benefits are paid (which could be a disadvantage if legislation or your personal circumstances change, and your BDBN has not been updated).
As superannuation legislation can be subject to change, it is important that your BDBN's are periodically reviewed (with your other estate documents) to ensure that they continue to fulfil your requirements.
Superannuation can be paid as follows in the event of your death:
Superannuation can be paid as a pension or a lump sum to your spouse in the event of your death, however it can now only be paid out as a lump sum death benefit to adult children.
The tax treatment of the death benefit would then differ according to whether the beneficiary is a dependent or a non-dependent.
For tax purposes, a dependent includes a spouse or former spouse, a child under 18, a person that you may have an interdependency relationship with or any other person financially dependent on you.
| Beneficiary (Tax Act Definition) | Tax-Free component | Taxable component |
| Dependent | Non assessable - no tax payable | Non assessable - no tax payable |
| Non-dependent | Non assessable - no tax payable |
15% Tax + 2% Medicare levy = 17% Total Tax |
Superannuation does not form part of your Will (without a valid BDBN directing it to), so you need to ensure that you consider how your superannuation benefits will be dealt with in the event of your death.
Each super fund typically has their own rules and forms that are required to implement a valid BDBN, so each super fund needs to be considered separately. For further information regarding this, you can read our Superannuation Death Benefit flyer.
As an SMSF trustee, you are responsible for ensuring that the death benefit payment rules are met. Strict rules apply to death benefit payments, affecting not only the payment itself but the ongoing structure of the SMSF.
The rules of your SMSF, as set out in your trust deed and related documents determine how the trustee structure is to be reconstructed on the death of a member as well as how death benefits are to be handled. Therefore, it is important to first review the trust deed as there may be specific requirements with regard to the death benefit process.
Generally, an SMSF member is also a trustee or director of the corporate trustee. Therefore, the death of a member will have consequences on the trusteeship of the fund and require action to ensure the SMSF will continue to comply with the Superannuation Industry Supervision Act.
Having a corporate trustee simplifies the administration during this period. If the trusteeship of a fund within the individual trustees change, the names on the funds' ownership documents must also change. This can be costly and time-consuming. To assist in the process, we have created an SMSF Death Benefit Checklist.
Insurance can play a key role in estate planning from two perspectives:
To divert funds away from the estate, using beneficiaries and policy ownership; and
As an estate equalisation tool.
All life insurance policies have two essential structural components; a policy owner (or policyholder) and a life insured. The life insured must be a natural person, whilst the policy owner can be a natural person, a corporation or a trust.
The proceeds of a life insurance policy will only be dealt with under a Will if the deceased is the policy owner and life insured (and has not nominated a beneficiary on the policy). Otherwise, if a beneficiary is nominated, then the proceeds are paid to that person/s. If the policy is owned by someone who is not the life insured, then the insurance proceeds are paid to the policy owner.
If you have a complex family structure or are concerned that your Will may get challenged, then structuring your life insurance with a beneficiary is an option to consider. This would allow the insurance proceeds to bypass the Will and be paid directly to the nominated beneficiary.
Caution should be taken to continue to consider your life insurance and the applicable beneficiaries when you are reviewing your estate documents to ensure that these remain current (and for instance, you don’t unintentionally have your ex-spouse still listed as a beneficiary on a life insurance policy).
It is possible to nominate children under 18 as beneficiaries, however benefits that are passed directly to minors are then subject to the highest marginal tax rate on the income from these funds. A more effective option may be to have the benefits directed through the estate and structuring a Will to establish a testamentary trust instead, particularly where minors are the intended beneficiaries.
Using life insurance for estate equalization refers to the process of including a life insurance policy for the purpose of equalising the benefits of the beneficiaries to a Will. This is a particularly effective strategy where there is an illiquidity issue within the Will.
Consider the following case study.
Bob owns and operates the family farm worth $2 million. He has three adult children – Dave, Chris and Sarah. Dave and Chris work on the farm with Bob and Sarah is not involved in the family business at all. Bob intends to leave the farm to Dave and Chris as their hard work has contributed to the value of the farm and business. However, he does want to ensure that all children receive an equal share in the estate.
To allow this to easily occur, Bob could purchase a life insurance policy for $1 million. In the event of his death, the Will can be structured so that the farm can be paid equally to Dave and Chris and the life insurance policy can be paid to Sarah.
It is essential that your life insurance broker or financial planner are keeping your solicitor informed when policies are implemented or changed. A simple change of beneficiary may defeat your estate planning wishes if all parties are not kept in the loop. It is also essential that you understand how your life iInsurance is structured and how it interacts with your Will.
If you would like to read more about insurance cover options to protect you and your family, read through our Types of Insurance flyer.
A Will can help ensure your assets are distributed according to your wishes, however a Will is only part of your estate plan. Thorough estate planning involves putting in place strategies that address all of your assets.
In addition to your Will, you should have appropriate arrangements in place to distribute or pass control of any assets that are not covered by your Will. We will discuss some of the more complex assets below.
Superannuation when in the pension phase can have nominations or a reversionary pensioner can be nominated. By nominating a reversionary pensioner, on death, the pension will continue to the nominated person. You are only able to nominate a reversionary pensioner who is a dependent.
Where you have nominated a reversionary pensioner, as the ownership is effectively transferred, the pension cannot be dealt with by your Will.
Generally, when operating a business as a sole trader, you as the individual own the business assets. These assets can be dealt with via your Will.
Where a business is conducted in a partnership structure, a partnership agreement should set out the provisions in relation to how business is conducted between partners. Unless an agreement is in place to say otherwise, on the death of a partner, the partnership ends.
Generally, a partner can make provisions in their Will for their interest in the partnership. Therefore, unrelated parties in a partnership should consider a buy/sell agreement. A buy/sell agreement ensures the continuing owners are able to purchase the remaining interest in the partnership on death.
Care should be taken with partnerships, as these are not always between two individuals and the partnership can be between companies or trusts.
A company is its own legal entity and its assets are held separately from its shareholders. Therefore, while your share in a company represents ownership of the company, the assets owned by a company cannot be dealt with by your Will.
Your shares in a company will generally form part of your estate and therefore can be dealt with under your Will. Therefore, when you have full ownership of a company this may be relatively easy to consider the assets owned by a company, however complications arise when there are multiple shareholders.
When considering your estate plan, reference should be made to company constitutions and shareholders agreements as these may greatly impact how your company is dealt with in the event of death.
Companies may have a loan to a shareholder which is possible to deal with under a Will, provided no alternative agreement is in place.
A trust is where a trustee holds assets for the benefit of another person or entity, the beneficiary. The trustee is obligated to hold the assets for the benefit of the beneficiary; however the legal ownership of the assets remains with the trustee. Therefore, assets owned by a trust cannot be dealt with under your Will.
While assets of the trust cannot be dealt with under your Will, in some instances the control can. The ultimate controller of a trust is the appointor. When dealing with a trust you should always refer to the Trust Deed. In some instances, the appointor is able to nominate a successor via their Will and sometimes the successor can be appointed via the Trust Deed.
Similar to companies, the trust may have a loan to an individual, which can be dealt with under the lender’s Will if no alternative agreement is in place. Loans within trusts are sometimes overlooked as loans can be created for a variety of reasons, including because of capital loaned to a trust or distributions loaned back to the trust. As part of your estate plan, you should consider how a loan to your trust should be dealt with.
Again, your Will cannot deal with the assets in this type of trust. However, the units, if owned individually can be dealt with under a Will.
Where there are loans from individuals to companies or trusts, a decision should be made on where the debt (which is an estate asset) should be paid.
There are several options, including:
There are tax consequences that can arise when debt is forgiven, particularly in relation to companies. Tax advice may need to be obtained where this is the desired option.
It is also important to consider loans between family members for estate planning purposes. Failing to have documented loans between family members can result in unintended estate consequences.
Generally, a loan by a Willmaker can be called in by the executor on behalf of the estate. Documentation of loans between family members is often overlooked and therefore the executor may not be aware of the loans in place.
As part of the estate planning process, it is important to identify existing loans and document them accordingly.
A thorough estate plan covers many aspects, so a number of professional advisers may need to be involved in the setup of your estate planning. Involving your solicitor, accountant and financial adviser is critical to ensure the right outcomes are achieved, particularly when you have a more complex family and/or financial situation.
Many business owners ask how do I effectively pass control of my business to the next generation? This is not the right question. The real question is how do I accumulate off-business assets so that I can easily hand the business over to the next generation and live comfortably in retirement?
Often business owners ask “my business is my super – that’s how I will fund my retirement.” However, in today’s rapidly evolving world will you still have a saleable business in 10 or 20 years (think taxi licenses and Kodak as only two examples of non-saleable businesses)? None of us has a crystal ball so succession planning is something that business owners must turn their minds to right from the start of their careers.
Generally, in business, we have 90-day, 1-year, 5-year and longer-term business plans. We have the advantage of thinking longer term about money. If you commence a business in your 30s you may have 25 - 30 years of business ahead of you, before selling or handing it over to the next generation (for family businesses). This very long time frame is of huge assistance in succession planning. Right from the start, you need to be thinking about building up business assets. This might include:
If all of the above is done correctly, by the time you're in your 50's or 60's you'll have a debt-free business premises that can either be retained for rent or sold, superannuation that can pay you a very good pension and you will have a non-super portfolio of shares or managed funds to top up your superannuation pension over time. You will have left the business in good financial shape. This allows you to easily sell the business or hand it to the next generation and walk away, knowing that you're financially secure. Worst case scenario, if the business is not saleable, you have wisely used the annual business profits over the years to ensure that your future is bright. This then gives you many options on how you structure the succession.
It is very important to have a long-term view of your structure (carrying on the business) and the structure in which you hold your non-business assets for asset protection. This is something that can be easily addressed with your accountant and solicitor. You need to have a view of “what's the right structure for me today?” because tax laws do change over time. Ensuring that you have the best structure based on how tax rules work under current legislation, is good preparation for succession. If you went into the succession phase last week, how would that work? We can facilitate these discussions so that you understand all of the consequences of the succession plan.
The next issue then is to decide - sale or takeover? That is, are you selling to a third party or are you bringing in your next generation to take over the business? If you are going down a next generation takeover path, then you need to ensure the next generation can step up and run the business successfully. We have dealt with many multi-generation business families who have successfully come out of the other side of their succession plan. Some of the most successful, are the families that send their children away for a period, to obtain either a trade, a university degree, or to work for a competitor. This gives the children something to fall back on but more importantly exposes them to other ways of doing things and of thinking about issues. If your child is going to someday be running a multimillion-dollar business they need to be prepared for success. As a bonus, if the child comes back to the business after that, they are doing so freely and willingly.
You also need to consider your future son and daughter in-laws. This means talking to your children about binding financial agreements from an early age and ensuring that they have the understanding that the family’s position is to protect the business for future generations. Having binding financial agreements ensures that everyone knows where they stand. Giving certainty to all parties and ensuring all parties will be financially looked after, makes for less conflict and stress.
From the minute your children are working in the business, pay market wages and superannuation on their behalf. As their experience and knowledge increase, undertake regular market reviews and increase their salaries and job descriptions accordingly. Nothing will wreck your next generations’ marriages more quickly than an in-law who perceives unfairness about their economic situation because their spouse (your child) is being unfairly underpaid.
As you get closer to your succession age, you need to consider how you will hand the business over. Is that where you work with your next generation in the business for several years to make sure that they can do the job? Again, your own position description and “salary” needs to be matched to your reduced workload and responsibility over time. Having a clear demarcation of when you will step back allows your child to successfully step up and take over. Think about all the issues that annoyed you when you took over from your parents, this will assist you in not making the same mistakes. Conversely, for a whole range of reasons, sometimes the best option is to have the children working in the business in defined and important roles but reporting to a CEO or independent board.
You also need to consider what happens to the succession plans in the event of your unplanned death or incapacity prior to the succession occurring. Life insurance can be used to ensure that if you pass away, the business is not put at risk from creditors and that your family won't have to be a forced seller. Selling the business at a loss destroys your family’s way of life and those changes can have lifelong impacts on your children and spouse. You want to leave your family in a position to choose whether to continue the business or not. (Note that there are some businesses where this is not possible if there is a lot of key person dependency). You should have regular conversations with your spouse about what you both would want to have happen to the business should something happen to you. Of course, you also need a well-drafted Will to allow a successful succession in the event of death.
Careful consideration also needs to be given to what would happen if you lost capacity. Who would take over the running of the business in the event that your children are not yet old enough to do so? In many cases, businesses are a true partnership between a couple, and it may well be that your spouse can continue to run the business if you are incapacitated. But this needs some honest conversations between the two of you to ensure that this would be the case. You should ensure that you have a comprehensive Enduring Power of Attorney (EPOA) and possibly a Corporate Powers of Attorney (CPOA) to ensure that there are no hitches in the ability of your spouse to take control of both the financial and health decisions that will need to be made. If you were incapacitated, who has the power to sign the cheques? The right Power of Attorney (POA) will ensure this is not an issue.
Succession planning is all about flexibility. Over the next 30 years, there will be changes to society, laws, your family and your outlook on life. Your succession plan needs to be re-visited at least annually and should be an ongoing conversation with the trusted advisers in your life.
We can assist you with drawing up a blueprint for succession regardless of where you're at - whether you're just starting out in your business, in the middle of it, or approaching retirement.
If you are a farming and grazing family and would like to learn more about succession planning so that you can easily hand the farm over to the next generation and live comfortability in retirement, read through our Farming Families Succession Planning flyer.
Every competent adult has the legal right to accept or refuse any recommended health care. This is relatively easy when people are well and can speak for themselves. Unfortunately, during severe illness people are often unconscious or otherwise unable to communicate their wishes – at the very time when many critical decisions need to be made. By completing an Advance Health Directive (AHD), you can make your wishes known before this happens.
An AHD is a document that states your wishes or directions regarding your future health care for various medical conditions. It comes into effect only if you are unable to make your own decisions. You may wish your directive to apply at any time when you are unable to decide for yourself, or you may want it to apply only if you are terminally ill.
As the Queensland Government website sets out, an Advance Health Directive allows you to:
Many years ago, I was on the side line of a case that made me a passionate advocate of the use of Advance Health Directives (AHD).
Tina and Jane were sisters and were the joint Enduring Powers of Attorney for their Mother Edith. Edith was aged 92 and resided in a High Care Nursing Home. Edith weighed 32 kg, could not feed herself, could not recognise her daughters, could not see, hear, or speak and needed assistance with all of the other activities of daily living – bathing, dressing, toileting and walking.
Tina was very passionate about the fact that Edith should be kept alive at all costs. Edith was in fact resuscitated several times in the last months of her life, which caused broken ribs and other injuries each time. Jane felt equally passionately that Edith should be let go and not resuscitated.
At a time when Tina and Jane should have been jointly caring for their Mother and providing support to her, they were involved in a protracted and nasty disagreement about their Mother’s medical treatment. Both thought they knew what Mum would have wanted. As they were jointly the Attorneys, this also made it difficult for the medical and aged care staff involved in Edith’s care.
Had Edith completed an Advanced Health Directive while she had the capacity, everyone would have had clear instructions on what medical treatment Edith wanted. Edith could have made informed decisions in conjunction with her GP about what health outcomes may occur and how she would like them managed.
Consider your own Power of Attorney, while you are fit and healthy now, there may be a time in the future when your Attorney needs to make serious health decisions on your behalf. Consider if your Attorney is one of your adult children and not all of them. You may be placing your Attorney in a position where they decide about your health and thus cause an ongoing disagreement with their siblings. (The right to life or the right to die is an area that raises passionate disagreement among family members and can be a cause of long-term family disagreements).
To avoid this, you could complete an Advance Health Directive which sets out your wishes for your medical treatment in the future. This means that your Attorney will be doing nothing more than ensuring your wishes are being carried out.
If you feel strongly about receiving life-sustaining treatment (or not) or participating in special medical research (or not) you should have an AHD to ensure your wishes are implemented. If you want to take the burden from your Enduring Power of Attorney to make these big decisions on your behalf, then you should have an AHD. It is important to note that a health provider does not have to follow directions in an Advance Health Directive that are not consistent with good medical practice or will not benefit you³.
An Advance Health Directive (AHD) allows you to plan what medical treatment or health care you would like in the event that you cannot make decisions for yourself. It also enables you to appoint an attorney for health and personal matters if you choose to.
You can use your directive to express your wishes in a general way, such as stating that you would want to receive all available treatment.
You can include relevant information about yourself that health professionals should know, such as:
Section 3 of the AHD form (QLD) is the place to record your views, wishes and preferences. For example, if you felt strongly that you want to die at home, then this can be recorded. The Advance Health Directive explanatory guide (Queensland) has excellent examples that you may use to understand this section.
To make an AHD you need to be aged 18 years or older, have the capacity to understand the nature and effect of the Directive and make it without pressure from anyone else.
Before you complete an AHD, read the Queensland Government's Advance Health Directive form and explanatory guide.
Once you have thought about your wishes you can download a copy of the Advance Health Directive form (here) or purchase a paper copy from a Newsagents.
Generally, you should then make a “long” appointment with your GP and take the form to the appointment. Your GP will explain your treatment options and will need to complete and sign part of the form. You then need to sign the form in the presence of a witnesses (see the guide).
You should then keep the AHD in a safe place and let your Enduring Power of Attorney (EPOA) and family/close friends know where the document is stored.
You should regularly review your AHD and if necessary, you can revoke the AHD and make a new one.
An Enduring Power of Attorney (EPOA) is in effect when you are appointing a substitute decision-maker for yourself. An Advanced Health Directive (AHD) is your directions regarding your future health care. It will be used by doctors in circumstances where you are unable to make health decisions for yourself.
If you’re named as executor in a Will, you may first need to apply for probate. Probate is the supreme court’s recognition that the Will is legally valid and that you (as executor) are authorised to deal with the estate. Probate is not always required, but will be required in many cases.
There are three main types of probate:
We will focus on the steps involved in a Grant of Probate.
Where a valid Will exists, and an executor named in the Will is applying, you will need a Grant of Probate. A solicitor or public trustee can undertake the application for probate, or the executor can do it themselves. There are 5 steps involved:
The court then examines the documents, and if in order, issues the grant which can be received back in person or by mail. The court may take 4 – 6 weeks to process the grant.
As you can see, obtaining a Grant of Probate is straightforward, but may take 7-9 weeks or longer to achieve.
In other instances, a Grant of Letters of Administration or Grant of Letters of Administration on Intestacy may be required. You should also note that this information is for Queensland, as each state has slightly different rules.
A probate may not be required if the value of assets is fairly small or if real estate is being transferred to a beneficiary named in the Will.
At this point, it is important to understand what assets are included in a Will, as any assets outside of the Will do not require probate.
| Assets in a Will (Probate may be required) | Assets outside of the Will (Probate not required) |
| Assets owned individually or as tenants in common | Assets held as joint tenants |
| Superannuation benefits where there is a valid Binding Death Benefit Nomination (BDBN) to the Legal Personal Representative | Superannuation benefits - no valid BDBN or a valid BDBN directing the benefits to a particular person |
| Life insurance benefits - owned by the deceased on their life or where the estate is nominated as the beneficiary | Life insurance benefits - where not owned by the life insured or a beneficiary is nominated (who is not the estate) |
| Shares in a company | Assets held within companies |
| Assets held within trusts |
1. Robert passed away with a valid Will. Susan is Robert’s executor and begins to review what assets were owned by Robert. She determines that his estate includes the following:
| Bank Account | $32,000 |
| Refundable accommodation bond for the aged care home where Robert resided | $550,000 |
| Personal contents | $5,000 |
Susan checks with the bank and they tell her that as with most banks, they cannot deal with the bank account (for balances over $30,000) unless they can receive a copy of the Grant of Probate. Susan also contacts the aged care home, and they also state that they require a Grant of Probate.
Therefore, Susan must obtain a Grant of Probate before she can execute the Will and deal with the bank and the aged care home.
2. Joan passes away with a valid Will. Her husband Bill is the executor. Joan owned the following assets jointly with Bill:
| Bank Account | $32,000 |
| Home | $1,000,000 |
| Vehicle | $110,000 |
| Share portfolio | $1,000,000 |
As all assets are owned jointly, on Joan’s death all the assets will automatically transfer to Bill (law of survivorship). It is likely that Bill will only require a certified copy of the Death Certificate to provide to the bank, Office of State Revenue (for the property), Department of Transport (for the car) and the stockbroker (for the shares).
3. Samira is aged 21 and passes away with no assets other than her superannuation of $5,000, which owns insurance of $200,000. Samira did not have a Will and there was no Binding Death Benefit Nomination on the super. Samira has no dependents, so her parents would like to receive her insurance and super.
In this case, Samira’s parents would need to apply for a Grant of Letters of Administration on Intestacy, as the super fund will not deal with them otherwise.
As you can see from the above examples, it is not necessarily the size of the estate that determines probate, but rather the type and ownership of assets.
Many people have a long-standing professional relationship with their accountant and would rely on them to assist the executor in locating all financial assets, attending to the final tax return for the deceased, and tax returns for the estate.
Under the Taxation Administration Act 1953, the deceased’s Accountant can only be re-engaged as Tax Agent when appointed by the deceased individual’s legal personal representative. The legislation defines ‘legal personal representative’ as the executor or administrator of the deceased person’s Estate who has been granted probate or letters of administration, respectively. This means that your accountant cannot access information or attend to taxation matters for the deceased or their estate until either Probate or a Letter of Administration has been granted.
If the deceased was completing tax returns prior to their death it is likely that a Grant of Probate will be required. If in doubt you can check with your solicitor on whether a Grant of Probate will be required.
There is excellent information available at https://www.courts.qld.gov.au/services/wills-and-probate/about-probate-and-grants
Our role in estate planning varies depending on your needs and the complexity of your personal and/or financial situation. We work hand in hand with you and your solicitor to ensure the right outcomes are achieved.
Get in touch with one of our expert Wealth Advisors in our Ulton Wealth Management team today or take 5 minutes to complete our Estate Planning Health Check to ensure you're on the right track.
 |
 |
This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial adviser before making any investment decisions. All Ulton Wealth Managers can provide financial services as Sub-Authorised Representatives of Ulton Wealth Management Pty Ltd. ABN 73 168 815 450 | Corporate Authorised Representative 460875 of Ulton Wealth Services Pty Ltd | ABN 86 614 308 628 | AFSL 497721.
