Your interests in businesses, companies and trusts must be taken into account in your estate plan to ensure that it is as comprehensive as possible.
While some people perceive this as an attempt to rule from the grave, this is not necessarily the case. Rather, it is a matter of ensuring that ownership and control of your businesses passes in accordance with your wishes.
Ownership of assets
Many people assume that all they need is a will and that their will covers everything. However, your will only covers:
- the assets (including money) that you hold in your own name (or in the case of real estate, as a tenant in common); and
- the assets that are paid or transferred into your estate after your death, such as life insurance and superannuation proceeds.
You do not own the assets held by a company or trust, as those assets belong to that entity. They are therefore not part of your estate and are not covered by your will. If your business is owned by a company or trust, you cannot deal with the ownership of that business after your death in your will. However, your broader estate plan can outline what you want to happen to the business after you die.
If you hold shares in a company or are owed money by a company or trust, those shares and that money are your assets. Those assets will form part of your estate and can be covered in your will. Nevertheless, it is very important to carefully check the provisions of relevant documents such as company constitutions, shareholders agreements, trust deeds and loan agreements, as those documents could contemplate an outcome that is different to what is in your will.
For example, it is common for a company constitution or a shareholders' agreement to give other shareholders the right to acquire the shares of a deceased shareholder. Those documents will also set out what rights the shareholders have, such as voting rights and the right to receive dividends and capital, particularly when there are different classes of shares. These documents should be reviewed and, if necessary, updated as part of your estate plan.
If you are owed money, you can, in your will, forgive repayment (and such forgiveness only occurs upon your death) but it is important that you obtain advice before you do that.
Control of assets
Generally, your position as a director of a company automatically ends when you die or become mentally incapacitated, but the company, being a separate legal entity, continues to exist. This can be particularly relevant for companies with only one director, and it is often for this reason that companies should themselves make a Power of Attorney to ensure that the company (and its business) can continue to operate if the director dies or loses capacity. A quick and smooth transition can be critical in maintaining the value of the company, as well as retaining staff and customers.
Trust deeds usually identify a particular person who has the power to change the trustee. The person who has that power is often referred to as the principal or appointor, and it is that person who has the ultimate control of the trust. It is very important that the trust deed is checked to determine what happens if the principal/appointor dies or loses capacity. The trust deed may even need to be amended or updated. Very commonly, a trust deed will provide that on the death of the principal/appointor, their powers pass to the executors of their will.
Choosing the executor of your will
The moment a person dies, all of their estate (including, for example, shares in a company) passes to the executors of that person's will. An executor's role and powers also commence immediately upon the will-maker's death. This will often mean that your executors will take control (either directly or indirectly) of businesses owned by a company or trust after you die. It is important that you record your wishes as to what you want to happen to those businesses in the event of your death. While your wishes are not binding on your executors, they will provide a guide as to how your executors should exercise the control that is conferred on them. Ultimately, you need to appoint executors you trust to give effect to your wishes, even if they are not bound by them.
With that in mind, one of the most critical decisions in a comprehensive estate plan is determining who the executors will be. Also important is determining who your enduring attorneys are and who the company's attorneys will be. Very often, they are the same people. What you can do during your lifetime to assist them, such as providing confidential directions and wishes, is also very important.
Our top tips for choosing your executors/attorneys
- Appoint more than one person and consider "back ups".
- It is absolutely imperative that your executors and attorneys will be able to work well together.
- Your executors and attorneys should be people you know and trust and who will do their utmost to carry out your directions and wishes.
- Appointing just family members is not always appropriate, and often a mix of family, friends and advisers works well.
- Discuss matters with all concerned so that there will not be any shocks or surprises when the time comes. Based on those discussions, you can change your plans and appoint different people.
You also have the ability to introduce and implement business succession strategies that cover not only a planned retirement, but an unplanned death or loss of capacity.
Dealing with corporate structures in a comprehensive way as part of your estate plan will ensure that there is not only a quick and smooth transition upon your death or incapacity, but that the value of those structures is maintained and enjoyed in the manner you wish.
For more information, please contact HopgoodGanim's Estate Planning and Administration team.