Why Business Owners Should Have a Solid Estate Plan
If you are a business owner, property owner, or investor, it makes sense that you should have an estate plan in place to protect your assets when you die or help you if you become unable to make decisions on your own about those assets.
What is an Estate Plan?
An estate plan records what you want done with your assets after your death. Estate plans are unique to your situation and usually involve meeting with a Lawyer. Depending on your circumstances, an estate plan can be complex, and you shouldn’t attempt it yourself. An Estate plan can include documents such as:
a testamentary trust (as part of your will)
superannuation binding nominations
In addition to documenting where you want your assets to go when you die, an estate plan also deals with how you want to be cared for — medically and financially — if you can no longer make your own decisions. This part of your estate plan may be in documents such as:
powers of attorney
a power of guardianship
an advanced healthcare plan
The documents you choose will depend on your situation and what you're comfortable trusting others with. Our clients benefit from the close relationships we have with several Lawyers. If you are unsure where to turn, we can point you in the right direction.
It is important that all these documents consider each other and are not created in isolation, a good lawyer will work with you to ensure that the documents, once created, all hang together nicely and provide for conflicting or ambiguous instructions.
What is a will?
A will is a legal document that sets out how you want the things you own to be distributed when you die. A common misconception is that you only need a will if you own property or have a large amount of money. It is also a document that is put off because death is a confronting topic. That aside it is important that you do seek advice and get your wishes documented. Having a will drawn up will ensure that you:
Ensure your assets go to the people you intend them to
Can leave specific items to specific people
appoint a person you trust to carry out the instructions in your will (your executor)
leave any other instructions you may have such as funeral arrangements
donate to charity if you wish.
Making a will removes chances for conflict that can arise when there is no evidence of the deceased person’s wishes. When it comes to blended families and 2nd marriages this is very relevant. A previous partner may have legal right to your assets if a will isn’t in place. It is important that you seek legal advice when preparing a will in these circumstances.
What is a Testamentary Trust?
It is a trust structure that is commonly used to protect family assets by having greater control over management and distributions of the deceased estate to beneficiaries. A testamentary trust works in conjunction with a will, and is like a discretionary trust, with the major difference being it only comes into existence with the death of the person who made the will. The trust can be funded by some or by all your assets, and by payments derived because of death, such as life insurance payouts and superannuation death benefits. As with your will, only a lawyer can advise you if this structure is appropriate to sit alongside your will and who you should put in place to act as the Trustee of the Trust.
What happens to your Super when you die?
When it comes to estate planning, your superannuation works a little differently to your other assets. Your Superannuation does not automatically form part of your will as superannuation benefits are not considered an asset. It is important to understand that the reason it isn’t considered an asset is that you don’t actually own your superannuation, the Trustee of the super fund controls it and determines any distributions.
To ensure that your superannuation balance is distributed as per your wishes upon your death another document is required. A nomination (binding or non-binding) is required to be made by you in conjunction with your will. Without a binding nomination in place, it will be the trustee (rather than your will) that determines where your balance is distributed. This can be problematic, particularly if you have your own Self-Manager Super Fund. If you die and leave another Trustee Director behind, it will be them who decides where your superannuation goes.
What is a Power of Attorney
A Power of Attorney is a legal document that gives a person the legal authority to act for you to manage your assets and make financial and legal decisions on your behalf. Whilst things are well this is something that we don’t think about, as with our will. If you are a business owner this becomes an important aspect of your risk management. Not only should you speak with a lawyer about having your own, but you should also be aware of whether your business partners have power or attorneys in place that may impact how your business is run. There are two types of Powers of Attorney:
Enduring - to manage financial and legal decisions on your behalf and continues even if you lose the ability to make decisions for yourself.
General - to manage financial and legal decisions on your behalf, only while you can make your own decisions.
Why every business owner should have a solid estate plan.
As with most business insurance, sometimes we don’t think too much about what happens when things go wrong before it is too late. As a business owner, there are several reasons why estate planning is important. Depending on where you are in your business cycle, your business may be your biggest asset. You may have to mortgage the house to grow your business. If something happens to you at this point, not having a will in place could mean that your loved ones miss out. There are several other reasons why you should go straight to a lawyer to start your estate plan:
Ensure the business can continue after your death
Ensure the business can continue to operate if you are seriously ill
The Business can continue to make legal contracts
To provide for your family
Make sure that estate planning forms part of your risk management plan to ensure that you and your family are protected if something happens to you.
We are lucky enough to have some great lawyers that we refer our clients to for Estate Planning. If this is something that you haven’t considered, reach out to one of our team.