Media Release - Little shop of horrors - potential pitfalls of business estate planning

16 November 2016


The value of real estate has greatly increased over the past 10-20 years and the growth of superannuation has seen people’s wealth and the size of their estates increase tremendously. In addition, many more clients are running their own businesses, whether full-time or as a way to supplement their income. Often, the business has grown quicker than expected and the issue of business succession in the event of death or incapacity has not been properly considered or brought to the client’s attention. 

The increase in small business owners in the past 20 years has led to an increase in ill-prepared, unsound succession plans as many owners simply fail to plan what happens to their business when they are no longer around or incapacitated.

Mark Jordan, who is chairing a session on Estate Planning for Small Business at the Law Society’s Succession Law Conference on November 18, said many small business owners he has dealt with did not understand the role that a Will played in business succession planning, or had not considered the issue of business succession in the event the owner becomes incapacitated.  

“Probably the biggest issue I see with clients who run a small business is the lack of consideration given to the role of executor of their Will,” said Mr Jordan, a member of the Law Society’s Succession Law Committee and Partner at Carpenter & Associates.

“It’s all too common for business owners to appoint their spouse or their children to act as the executor of their estate without properly considering whether they are the best people to run the business immediately after the owner’s death.”

“It is essential that someone with the necessary knowledge and commitment to the business is appointed to manage the business. The wrong appointee can cause a long-successful business to abruptly fail.”

Mr Jordan also said it was common for clients to want to pass on the business to one child but wanting to make sure the other children get an even slice of the overall inheritance. 

“Sometimes one child wants to take over the business but other siblings have no desire to go down that path,” Mr Jordan said. “It is important that all these issues are resolved so that a tailored plan can be put in place to achieve the client’s wishes and ensure the fairest possible outcome for all parties.”

Mr Jordan said it was a common misconception that a business could automatically be passed on to a beneficiary through a Will. 

“If the primary assets of the business are owned by a company or a trust then they are not property of the client and cannot be specifically passed through their Will. This often comes as a shock to clients when they realise that they cannot simply gift an asset in their Will that they think they own but only control. Although they appear similar, there is a big difference between ownership and control when it comes to estate planning,” he said. 

“There are often ways to achieve the client’s intention and it may require that the control of the company or trust is passed, sometimes through their Will, to the correct person for them to be able to properly deal with the asset in question.”

Sometimes the clients themselves aren’t sure of the structure of their own business, because, for example, their accountant set it up. 
Mr Jordan said having a watertight Enduring Power of Attorney was also important for owners to have in case they lose capacity to run the business. 

“Planning for incapacity is essential to ensure the business can continue to run as seamlessly as possible in the event of an accident,” he said. “This can be covered by an appropriately drafted Enduring Power of Attorney appointing the correct person or people to take over the running of their business. All too often is this simply left to the surviving spouse or adult children who have had little, if any, involvement in the business and are having to deal very quickly with urgent business transactions at a time when they are just coming to terms with the incapacity of a loved one.”

Mr Jordan will be chairing the session “Little Shop of Horrors, Estate Planning for small business owners”, at the Law Society’s Succession Law Conference on November 18 at the Hilton. The presenter of the session is Therese Catanzariti, a barrister at 13 Wentworth Chambers in Sydney.

Media contact: Michael Esposito 0422 073 146 
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