For business owners, not making a will creates a world of pain

At all costs, avoid giving the state control of your wealth and business, writes Ben Hurley.

Family dynamics are never simple, and drawing a will and making a plan for what happens after the death of a business owner is an especially sensitive matter. But, however uncomfortable it may make the business owner to face such tasks, it’s nothing compared to the stress those managing the owner’s estate and business will face without one.

For business owners, creating a will demands tough calls that can feel unnatural and wrong – in some cases, it can even include assigning numerical values to the most important relationships in their life. In some measure, they also face the uncomfortable reality of their own death.

But those that don’t make a plan will pass away ‘intestate’ – meaning they pass without a will and their wealth will be divided up according to varying state legislation, potentially contrary to their wishes.

Control of their business may pass to spouses or other family members who have no experience running it, instead of those the business owner believed would be best to manage it.

This is why ANZ Private works with trusted third-party experts to help our clients address their estate planning needs, for more holistic financial wellbeing.

Who gets what: difficult conversations

Unfortunately, it’s not unheard of for business owners to pass away without even a simple will in place, creating enormous angst for business partners and family members alike.

What’s more, it’s not always smaller or newer businesses exposed to this risk – ANZ Private  have begun relationships with owners of multi-million-dollar businesses only to discover they hadn’t set up a plan for their estate..

And that’s not surprising given 10 million Australians do not have a will (a little more than half of all the nation’s adults), comparison site finder.com.au found in 2018.

ANZ Private Senior Private Banker Susan Hawkins says there are a range of reasons people avoid planning for their estate.

• Assets can’t always be divided cleanly in equal portions, and estate planning can involve difficult calls about whether one sibling is old enough and responsible enough to handle the responsibility of an inheritance.
• There is the potential for conflict with spouses and children-in-law if assets pass only to blood relations.
• Some with younger children may find it too emotional to assign a guardian in the event of their untimely death, let alone choose a guardian from among siblings they respect equally.
• Cultural factors can also play a role, as some cultures are more comfortable talking about death than others.

It is reasons like these, along with a touch of apathy, that leaves most Australians with no control over what will happen to their assets on their death, exposing them to an unfavourable outcome.

“We get comments ranging from: ‘it’s something I’ll do when I get the chance’, right through to: ‘it’s not going to bother me because I’ll be dead and someone else will sort it out when I’m gone’,” Hawkins says.

Facing it is better than avoiding it

Leaving the division of assets to varying state legislation or government administrators should, ideally, be avoided at all costs.

Although this legislation is intended to distribute someone’s assets fairly, they do so without respect to business owners’ wishes or plans – meaning the intended beneficiaries may not inherit their share of the estate.

Another challenge that falls across estate lawyers’ desks all too often is that posed by children who are too young to run the family business when ownership is passed to them. Proper estate planning can help avoid this by stipulating that children can’t receive control of their inheritance until they reach a certain age.

Matters could also end up in the hands of the public trustee, which can be an expensive way of having the estate administered. Assets could be realised and cash dispersed in the interests of simplicity and fairness, even in cases where holding them longer term would lead to a better outcome for the beneficiaries.

It’s also important to consider the depth and detail an estate plan goes into. Some people opt for a simple post office will kit, but these can have adverse consequences.

Imagine as an example two people with children from a prior marriage.

They buy a house together as joint tenants and each complete a do-it-yourself will, leaving their half-share of the house to their children from their prior relationship. If one of the parents dies the house will pass in full to their partner because it is jointly held, and their children will miss out. A will kit also does not consider how to make the wealth transfer as tax efficient as possible.

How to start planning your estate

Good estate planning means preparing well before any trouble arises and coming up with an integrated approach to wealth transfer. An estate plan should begin with a face-to-face meeting with an estate-planning lawyer to map out what assets are owned and how. Not all assets are covered by a will.

Certain assets – like jointly-held property, superannuation, life insurance, or assets in a company or family trust – are known as ‘non-estate assets’ and different rules apply.

You can’t direct how these individual assets are passed on, but you may outline how you’d like control of those entities to be passed on within your will.

Some people who have a principal residence that is owned jointly will sever the joint tenancy, instead owning the asset equally as tenants in common. This means they can dispose of the asset in their will without it automatically passing to the survivor.

Business owners should put more detail into their estate planning. A shareholders’ agreement or buy-sell agreement should be drawn up in addition to the will, which governs what happens in the event of incapacity, death or if a business owner wants to leave.

A range of risks involved in the passing of wealth should also be discussed. For example, what happens if a beneficiary faces bankruptcy, has special needs, or is prone to gambling or drug addiction?

If a beneficiary’s marriage breaks down, is the testator (the person whose will it is) comfortable with a significant portion of the inheritance going to the ex-spouse?

A testamentary discretionary trust or a bloodline trust offers advantages for some situations. Such vehicles have a better level of protection against divorce or bankruptcy proceedings and can also be very tax efficient. But they must be carefully explained to beneficiaries and their spouses.

Estate planning should include making an enduring power of attorney, and an appointment of an enduring guardian who can manage your finances and make legal, health and lifestyle decisions if you become unable to do it yourself, perhaps due to accident, stroke or dementia.

An advanced care directive can guide family members and medical professionals on how and when to use emergency and other treatments that may prolong your life but not necessarily your quality of life in situations where you are unable to make decisions yourself.

Pre-emptive family conversations are crucial

In some situations, a business owner creating a plan for their estate may feel there isn’t much need for discussion with their family – for example, an equal distribution of wealth between three children.

Then there are situations that are more complex, such as leaving a greater share of assets to a particular child or more prescriptive instructions about which assets should be held or sold. In these cases, explaining the reasons for the decision (at the time they are made) with family members may reduce discord when the wealth is finally distributed.

A letter of wishes, while not legally binding, can also give an explanation to executors, trustees and beneficiaries about why the will was drawn up the way it was.

Having all parties as much in agreement as possible not only helps prevent arguments and relationship breakdowns, it can also prevent costly court actions if family members decide to challenge the will and seek to alter its terms.

Use all the right advisers and schedule reviews

An estate-planning lawyer will do most of the work, but other advisers have roles to play in effective estate planning.

It’s important that financial advisers or accountants talk to each other to make sure their plans are all on the same page with regards to issues like tax efficiency and non-estate assets.

Superannuation provides a useful example. Many Australians hold their super in a self-managed super funds or managed funds, and will need to consider what death benefit nomination arrangements – if any – should be in place to protect this asset.  

ANZ Private’s network of external experts can assist with this. The bank regularly works alongside a range of professionals to meet clients’ bespoke needs, and is properly equipped to facilitate this communication.

Importantly, the exact relationship between the deceased and the recipient of their benefit can have tax implications. Planning for and managing these tax obligations should fall under the brief of the accountant.

Hawkins says even those with estate plans bedded down should consider reviewing them every two or three years to make sure the arrangements still apply – particularly those with complex instructions about how assets should be handled.

“It might not be the most fun conversation, but it really does bring a lot of peace of mind just knowing there is a plan,” Hawkins says.

“You can even have funeral arrangements and quite a bit of detail in your will, and that can be helpful for others to have direction from you in a time of crisis. There’s some comfort in that.”

Discover how ANZ Private can help

Estate planning can be complex, so it’s important you obtain advice from a competent professional with experience in this area.

ANZ Private can help by referring you to experienced estate planning professionals. You can get in touch by speaking to your ANZ Private Banker directly, or you can request a callback.

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• Contact us by requesting a callback
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