We often say to clients that you need to prepare for the worst and hope for the best. When it comes to estate planning, it is tempting to stick your head in the sand. However, the consequences of not having the right estate plan can be catastrophic, especially for family members and loved ones.
What is estate planning and how can it benefit business owners?
An estate plan is much more than a Will. While a Will it is vital, it is one of the documents and structures that support your estate plan.
Your estate plan makes your wishes about all your assets and wealth clear to others, including the next generation of your family and business owners. This can provide transparency and support business succession planning.
Another benefit of a proper estate plan is making sure you, your dependents and other beneficiaries don’t pay unnecessary tax.
Estate planning and business owner’s family dynamics
It is common for people to live in blended families. Estate planning can be more difficult the more family members you have. Talking to family members about your estate plan, and your reasoning, can help to reduce the chance of your Will being contested.
What are the key elements of an estate plan?
An estate plan is important not just for when you pass away but also if you lose the capacity to make decisions. That is why it is a good idea to have an estate plan in place as soon as possible.
Here are some of the key documents and structures business owners should consider when establishing an estate plan.
Discretionary family trusts are a great business succession planning tool. However, you cannot include the assets of a family trust in your Will as they belong to the trust, not you. What you can do in your Will is pass control of the trust to another trustee or beneficiary.
Powers of Attorney and Enduring Guardianship are documents that allow other people to make certain decisions on your behalf if you lose the capacity to do so.
Your Will needs to be properly prepared, so it is valid and stands up in Court if contested. A Will states where assets are to be distributed but it doesn’t provide reasons for that decision. Letters of wishes or statutory declarations can be helpful tools if an explanation is necessary.
Testamentary trusts can be a tax effective structure for your assets and offer an extra level of protection. However, they are not always the best option. The testamentary trust cannot include the assets of your family trust, as they do not form part of your estate.
Superannuation and death benefits. Your superannuation is not automatically included as an asset in your Will. If you don’t nominate whom you want to receive your superannuation on your death directly with your superannuation fund, the fund trustees have discretion to decide where your superannuation will go. Transfer balance caps apply to superannuation income streams and death benefits which is a key consideration to the type of nominations and future tax planning.
Insurances can be used as a way to make an estate equitable amongst beneficiaries and can provide cashflow for distribution of an estate.
Assets in an estate plan are taxed differently
When developing your estate plan, it is important to remember that different assets are subject to tax differently. Overseas beneficiaries are taxed differently to Australian beneficiaries too.
The way your superannuation death benefit is taxed depends on the taxable and tax-free portion of your superannuation as well as whether it is taken as a lump sum or an income stream and who the ultimate beneficiary is.
Don’t set and forget estate planning
Even if you already have a Will or an estate plan in place, you need to review them regularly. Your circumstances will change. You may get divorced, remarry, sell or acquire a business, acquire new debt or assets or change your wishes. Your children may marry or divorce or you may become a grandparent. The laws and tax treatments relating to different assets change too.
Expert help with estate planning for business owners
By now you have realised that estate planning is vital for business owners but can be legally and financially complex. An expert business adviser and wealth and financial adviser can make estate planning easier and more tax and cost effective. They can help get the ownership structure of your assets to match your wishes. Having someone to facilitate the difficult questions, including about family dynamics, and be an independent person in discussions about estate planning can be very useful too.
There isn’t any family or business situation our expert team have not come across. Having an expert adviser, who specialises in estate planning, can help you to cost effectively and efficiently consider what is best for your circumstances.
Got a question about estate planning?
We love questions. If you want to know more about Pitcher Partners Newcastle and Hunter’s services please contact us.
Lydia Blakemore CFP is a Partner and Private Client Adviser at Pitcher Partners Private Wealth, a Certified Financial Planner and an Accredited Adviser with the Family Business Association. She works with successful, multi-generational business families to achieve their personal and business financial goals.
