To ensure your interests are taken care of after you’re gone, there are many documents and provisions you need to put in place. Here is a brief business owner’s guide to estate planning.
We often don’t like to think of our mortality, but the best way to take care of your family and loved ones in the event that you are no longer here is by putting in place a solid plan. For business owners, this is even more important, as different business structures have different implications. Taking the time to think about what your wishes are will allow you to put in place an estate plan that looks after all that you have worked so hard for. Let’s take a look at what to consider:
The will
Your will is normally the cornerstone of your estate plan. It allows you to appoint an executor, who will administer and distribute your estate in accordance with your instructions contained in your will. Additionally, it allows you to appoint a guardian, whom you wish to care for and raise your minor children. Your appointees to these roles should be people you trust implicitly.
By stipulating your wishes in your will, you determine who receives your assets upon your death and in what proportion. It is also important to consider how each beneficiary is to receive their inheritance, whether personally in their own name, or in a protected structure such as a testamentary trust.
“It is also important to consider your digital legacy and passwords and leave directions in respect to these in your will.”
For many people, their business is a significant asset and, as such, needs to be carefully considered when putting an estate plan in place. There are a number of ways to operate your business, and the structure you choose will determine how provision is made for this asset in your estate plan.
If you operate a business as a sole trader or as a straight trading company, then any assets held by the business will be personal assets and provision in respect to what is to happen to these assets can be made in your will.
It is important to note, however, that your will can only deal with individual assets that you own personally. Therefore, if you operate your business through a trust, such as a discretionary trust, the assets held by the trust are not individual assets and you cannot make provision for what is to happen to the assets of the trust in your will. Depending on the provisions of the trust deed of a discretionary trust you may, however, make provision for a replacement appointor or guardian of the trust in your will.
If your business is operated as a partnership, or if you have a succession agreement or buy sell agreement in place, then such agreements shall stipulate what is to happen to your equity in your business and, prospectively, the assets of the business. When putting your will in place, it is an ideal time to review these agreements to ensure that they are current and also to conceptualise how they tie in with your estate plan.
It is also important to consider your digital legacy and passwords and leave directions in respect to these in your will, so that your executor is aware of your wishes.
Superannuation
Often people mistakenly think that your superannuation automatically forms part of your will. It doesn’t. Your superannuation is held on trust for you by the trustee of your superannuation fund.
It is, therefore, imperative that you provide the trustee of your superannuation fund with a death nomination providing a direction stipulating where you would like your superannuation to be paid at the time of your death. The most common nominations are binding death nominations and non-lapsing binding death nominations.
If no nomination is in place, it is at the trustee’s discretion in respect to how they pay your superannuation. They are, however, bound by the governing rules of the superannuation trust deed, which in most cases would stipulate that in the first instance your superannuation must be paid to your dependants, and should you leave no dependants, then to your estate.
Life insurance
Life insurance can be a powerful tool in taking care of families and loved ones left behind, and as such insurance is an aspect that is increasingly becoming of value when putting an estate plan in place.
There are a number of different insurances that should be taken into consideration, including permanent disability insurance. It’s important to realistically ask yourself if something happened to you and you became permanently disabled, would you have adequate funds for your care and living expenses and to care and provide for your family if need be? Will your outstanding liabilities, such as home loans, be able to be serviced or paid out?
Similarly, life insurance put in place in the event of your death can be useful in providing for your family when you are no longer here. One motivating factor for many people putting life insurance in place is to cover their children’s future education costs, mortgages, debts, and living costs. It is ideal to look at these liabilities and expenses and ask yourself how much insurance you would need to cover these and other costs if you were not here tomorrow.
Insurance is an integral consideration when putting your estate plan in place. At the very least, a review of your current insurance will reinforce for you what you currently have in place, and such a review could be the catalyst for determining whether the level of insurance you have is sufficient.
Power of Attorney
Putting in place a Power of Attorney document allows you to appoint someone to make financial, legal, guardianship, and medical decisions on your behalf if you become incapacitated and can no longer make your own decisions.
For business owners, this is crucial, as it could be the difference between your business remaining sustainable or diminishing.
If you do not have Power of Attorney documents in place, someone would need to make an application to the relevant state authority to be appointed your guardian and administrator. The person appointed may not be the person you would have chosen to make these important decisions on your behalf. It is, therefore, imperative that Powers of Attorney are an integral part of an estate plan.
Trusted advisers
If you have trusted professional advisers whom you engage, it is a good idea to include them in your estate-planning process, particularly if you have a complex business structure. They will be able to advise you on legal, tax and financial implications of proposed decisions and provide invaluable advice that will assist you in putting in place a premium estate plan.
Business owners work hard to accumulate their wealth. The last thing you would want to happen is for all your hard work to come undone. Take some time out from your business, put a pristine estate plan in place and leave a beautiful legacy for your family and loved ones. It will give you peace of mind knowing all is in place.
This article first appeared in issue 35 of the Inside Small Business quarterly magazine
