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Securing Your Legacy with Succession and Estate Planning

No matter your family’s asset position, complexity of structures, or business interests – it goes without saying that thorough and effective planning makes a world of difference to day-to-day operations. However, long-term Succession and Estate planning is often given less attention – though it really shouldn’t.

Understanding the intricacies of Succession and Estate planning is an essential component in safeguarding your legacy and ensuring the seamless transition of wealth across generations. There are essential documents and strategic planning required to manage your family’s wealth effectively, highlighting why a proactive approach is crucial for maintaining harmony and aligning your family’s long-term objectives.

In this article:

• Part One – General & Individual Estate Planning
• Part Two – Family Office Succession & Estate Planning
• Part Three – Legal Considerations in Succession Planning
• Part Four – Estate Administration: Managing the Process Upon Death

Part One – General & Individual Estate Planning

Why Succession and Estate Planning is Critical

Succession and Estate planning offers a strategic blueprint for your family’s financial future, providing clarity and security while preventing potential conflicts among heirs. It’s not just about distributing assets but also about defining roles and responsibilities to ensure your family enterprise continues to thrive through the transition.

Key Documents in Estate Planning

When it comes to estate planning, the right legal documentation ensures that your wealth is protected and passed on according to your wishes. Here, we’ll explore key documents that form the foundation of a solid estate plan:

• Wills and Testamentary Trusts
• General Trust Structure
• Superannuation Binding Death Benefit Nominations (BDBNs)
• Power of Attorney
• Enduring Power of Attorney
• Enduring Power of Guardianship
• Healthcare Directives
• Shareholder and Buy/Sell Agreements
• Family Constitution/Charter (for Family Offices)

Each of these plays a crucial role in ensuring your family’s wealth is managed and distributed in line with your values and preferences.

Wills and Testamentary Trusts

Wills and Testamentary Trusts are arguably the most well-known elements of estate planning, but their significance cannot be overstated.

A Will is a legally binding document that specifies how your assets will be distributed upon your death. Without a valid Will, the distribution of your estate may be governed by the laws of intestacy, which might not align with your family’s expectations. In a family office, where wealth is often intertwined with business interests and intergenerational investments, having a well-drafted Will ensures clarity and reduces the risk of disputes among family members.

A testamentary trust will is a type of will that establishes one or more discretionary trusts upon your death (or the death of your spouse or partner). Essentially, it combines the functions of a will and a discretionary trust deed into one document, allowing for greater control over the distribution and management of your estate.
With a testamentary trust will, you can specify the assets from your estate that are to be placed into the separate testamentary trusts created by the will. This ensures that particular assets are directed into individual trusts according to your wishes.

Your testamentary trust will also designates a trustee for each trust. This is the person (or people) responsible for holding the assets within the trust, managing their income, lodging annual tax returns, and deciding which beneficiaries will receive income and/or capital distributions from the trust. In addition, you can define the beneficiaries of each trust, either by naming individuals or by specifying classes of beneficiaries, such as family members and direct descendants. This provides flexibility and ensures that only those intended by you will have access to the trust’s benefits.

Lastly, your testamentary trust will can appoint an appointor for each trust. The appointor has the authority to hire or remove trustees, making them the most influential figure within the trust’s structure. This role adds a level of oversight, ensuring the trust is managed in line with your intentions over time.

General Trust Structure

A Trust is a flexible and powerful tool in managing wealth both during your lifetime and after your passing. Trusts allow you to specify how and when your assets are distributed, often offering tax benefits and greater control over the preservation of wealth for future generations. For high-net-worth families, Trusts can help ensure that wealth is not eroded by estate taxes or poorly managed by beneficiaries who may not be ready to inherit significant sums. Trusts can also protect assets from creditors and divorces, providing an added layer of security.

In a family office setting, Trusts are often used to create a structured, long-term plan for wealth distribution that aligns with the family’s mission and values. This might include educational trusts for grandchildren or trusts to support philanthropic endeavours. Tailoring Wills and Trusts to reflect both personal and business interests is critical in ensuring a seamless transition of wealth.

Superannuation Binding Death Benefit Nominations (BDBNs)

A BDBN is a written direction from a member to their superannuation trustee setting out how they wish some or all of their superannuation death benefits to be distributed. The nomination is generally valid for a maximum of three years and lapses if it is not renewed. If this nomination is valid at the time of the member’s death, the trustee is bound by law to follow it. The time constraints on a BDBN highlights the importance of regularly reviewing your estate planning documentation and updating as required.

Power of Attorney

A Power of Attorney (PoA) is a legal document that grants a trusted individual the authority to manage your affairs should you become unable to do so yourself. This might be due to illness, incapacitation, or any other situation that leaves you incapable of handling your financial, business, or legal responsibilities. In a family office, this is especially important as the scope of your wealth and interests may be vast, requiring someone with both legal authority and understanding of your family’s objectives to make critical decisions. A General Power of Attorney is often used for specific transactions or time-limited situations and ceases to have effect if you lose mental capacity.

Enduring Power of Attorney (EPA)

An Enduring Power of Attorney (EPA) is a document that gives another person, or organisation, the legal authority to make financial and/or property decisions on your behalf, in the case that you were to lose the capacity to make independent and informed financial decisions. An Enduring Power of Attorney remains in effect even if you become incapacitated, making it a key document in any long-term estate or succession plan.

For affluent families, appointing a Power of Attorney who is well-versed in family business operations and the broader goals of the estate is particularly important. This person may need to make important decisions regarding investments, tax obligations, or the management of business interests. The role demands trust, expertise, and the ability to handle both financial and personal responsibilities with the family’s long-term interests in mind.

Enduring Power of Guardianship (EPG)

An Enduring Power of Guardianship (EPG) is a legal document that authorises a person of you choice to make important personal, lifestyle and treatment decisions on your behalf. In the event you are no longer able to make these decisions for yourself, your nominated enduring guardian can make decisions for you such as where you live, support services you access, and treatment you receive.

Healthcare Directives

A Healthcare Directive, also known as an Advance Health Directive (AHD) or Living Will, allows you to set out your preferences for medical care should you become unable to communicate these wishes yourself. This document ensures that your healthcare providers and family members understand your desires regarding life-sustaining treatments, resuscitation, organ donation, and other medical decisions.

Healthcare Directives are not particularly common, often used in cases where a person has a terminal illness, or religious beliefs that prevent certain types of care. To better understand if an advanced health directive is appropriate in your circumstances, it would be prudent to seek professional advice and discuss with your medical practitioner.

Shareholder & Buy/Sell Agreement

A shareholders’ agreement is a contract between the shareholders of a business that defines each owner’s rights and responsibilities. When a business has multiple owners or founders, shares determine each person’s stake in the company, and the shareholders’ agreement sets out the terms that govern these relationships and their involvement in the business.

A well-crafted shareholders’ agreement can play a critical role in a succession plan by helping prevent costly disputes and aligning with trust and estate law. To avoid potential issues around succession, the shareholders’ agreement should address several key areas:

• Defining ‘Terminating Events’: These events, typically death, retirement, or incapacity, outline when the ownership structure may need adjustment.
• Key Person Insurance: Arrangements for directors, shareholders, and key persons should be specified, including the amount and timing of any payments. This ensures that if a key person passes away or becomes incapacitated, the remaining shareholders have the resources to buy their share.
• Share Valuation Procedures: The agreement should include a method for valuing shares to determine the worth of a deceased shareholder’s stake. This valuation can initially be established when taking out insurance but will need regular updates to reflect the company’s current value.
• First Right of Refusal: A first right of refusal clause grants existing shareholders or the company the option to purchase shares if one shareholder wishes to sell. Without this provision, a deceased shareholder’s family could inherit the shares and potentially become involved in the business, which could lead to conflict if they lack experience or have differing objectives for the company.
• ‘Drag Along’ and ‘Tag Along’ Rights: These provisions protect minority shareholders if the majority shareholder decides to sell to an outside party. ‘Drag along’ rights ensure minority shareholders are included in the sale, while ‘tag along’ rights allow minority shareholders to participate in the sale under the same terms.

A comprehensive shareholders’ agreement anticipates and addresses these situations, providing a clear framework that helps protect the business and maintain harmony among shareholders.

A buy-sell agreement is a legal arrangement that, through put and call options, commits the remaining owners of a business to purchase the departing owner’s share upon certain triggering events. These events are typically significant, such as the death or total and permanent disablement of one of the owners, ensuring that the agreement is only activated when absolutely necessary.

A buy-sell agreement can operate in two primary ways:

• Call Option: This option enables the remaining owners to require the departing owner (or their estate) to sell their stake to the continuing owners.
• Put Option: This option allows the departing owner (or their estate) to compel the continuing owners to buy their interest.

These agreements can be tailored to suit any business structure, whether it’s a partnership, a unit trust, or a proprietary company.
Buy-sell agreements are often funded through a life insurance policy, which pays the departing owner or their estate an amount equivalent to their share in the business in the event of death or permanent disability. This funding arrangement ensures that the remaining owners have the resources needed to buy out the departing owner without straining the business’s finances.

Part Two – Family Office Succession & Estate Planning

Succession & Estate in Family Office Governance

The complex financial and legal requirements of families with significant wealth and business interests necessitates additional consideration in structuring Succession and Estate planning. A Family Office arrangement engages an experienced team of professionals to oversee and manage the affairs of the family. A key benefit of a family office is its governance capability.

Family Constitution or Family Charter

A family charter acts as a bespoke constitution for your family office, detailing the vision, values, and operational procedures that guide your wealth management. This is essential not only for aligning current family members but also as a guiding star for future generations.

Implementing Family Agreements

Family agreements foster transparency and set clear expectations on wealth management, roles, and responsibilities. These agreements are pivotal in minimising disputes and ensuring every member understands their part in the family legacy.

Part Three – Legal Considerations in Succession Planning

The Role of Legal Documentation

Legal documents form the backbone of effective Succession and Estate planning. They provide the legal structure necessary to enforce the family’s decisions regarding their wealth and business dealings.

Choosing the Right Advisers

Selecting an experienced legal adviser who understands the nuances of family office structures and intergenerational wealth is crucial. They will guide you in creating and maintaining up-to-date legal documents that reflect the current legal landscape and your family’s evolving needs. Selecting a financial adviser and accountant requires a similar level of attention. There are advisers in the industry that have extensive experience in Succession and Estate Planning matters, some even specialise in these areas.

Part Four – Estate Administration: Managing the Process Upon Death

Estate administration involves executing your estate plan as intended, requiring meticulous attention to detail and adherence to legal standards to ensure your wishes are met without complications.

The Importance of Professional Management

Engaging professionals in estate administration can prevent costly errors and ensure the process respects both legal requirements and family wishes. It’s about continuity and upholding the family’s values and vision throughout the transition.

Estate Planning – Living Documents

As is the case with many things in life, estate planning should not be a “set and forget” exercise. It should be updated as time goes on, and as your needs, assets, business interests, family structure and wishes change.

What now?

In the landscape of family offices, the stakes are high, and the complexities are many. Implementing a robust Succession and Estate plan with clear, legally sound documentation is not just a strategy—it’s a necessity that protects your assets and aligns with your family’s vision for the future. Regular reviews with professional advisers are essential to adapt to legal changes and family dynamics, ensuring your legacy is preserved across generations.

Ensure your family’s legacy is protected and its future secure. Schedule a complimentary consult with our experts today to review your Succession and Estate plans, tailoring them to meet the unique needs of your family office. You can reach us via our website, or call us on 08 9325 2411 (Perth) or 08 9301 2200 (Joondalup).

written by:

Steven Lisle

Tax Manager Steven Lisle has been part of the McKinley Plowman team since 2007, and in that time has built his repertoire upon delivering industry leading, up-to-date international and Australian tax strategies and consulting services. Steve's clients enjoy the optimised tax outcomes he provides them, especially where complex structures could otherwise lead to significant tax obligations.