Business Succession Planning

What happens to your business when you die or become disabled? Most business owners are flat out managing staff, payroll, creditors, customers and technical changes, which means there is little time left to plan for risks. Here are a few suggestions in getting things sorted:- 1. Enduring Power of Attorney – Get this signed and make sure it covers trusts and companies as well as your personal capacity for financial and health matters; 2. General Power of Attorney – Where appropriate, you should sign a General Power of Attorney if you are sole Director of your company to make it easier to deal with banks and other companies with whom you contract; 3. Insurance – Get insurance to cover at least part of your business debt level, cash flow requirements for 6 months and immediate expenses. In terms of goodwill, if you have a shareholder or partner you must insure for the value of your business interest or equity. 4. Business Succession Agreement – You must have a written agreement with your shareholders or partners that provides for a conditional grant of an option to acquire the balance business from you or your family trust as owner of the share. If it is not written correctly, stamp duty and capital gains tax will rise as at the date of the Deed leaving a worse revenue outcome for your family. 5. A Valid Will on the best terms – Everyone should take the opportunity to prepare a valid Will that covers all of their circumstances including business interests companies, shares, trusts and property, on terms that provide the best outcomes for their family. It is a...

Avoid Disaster with your SMSF

Is your Self Managed Super Fund a disaster waiting to happen? Wow! What a question! If you are like most of our business and investor clients, then you will have already established a self managed super fund (SMSF). I wonder how that came about. Did your financial advisor tell you about the benefits? Was it your accountant just trying to save you capital gains tax on a sale of a significant asset? All SMSFs are established with a set of rules contained in a Trust Deed. The Deed is vital to the operation and compliance of the fund. We want to alert you to problems that can arise with  SMSF Deeds and what you can do about it. Establishment of the fund When the Trust deed is prepared it will have a section in which the Trustees need to sign to accept their role and confirm the terms of the deed.  Signing these papers might seem simple but common mistakes can cause a great deal of problems and costs later on.  A couple of common mistakes are: The proposed trustee signs the deed ‘as trustee’ rather than personally; The date the Deed is signed is before the proposed corporate trustee has been established. Signing as ‘as trustee’, cannot occur until the formal establishment of the fund has been completed. Questions as to the proper execution of the deed and the capacity in which the deed was signed can arise if you get it wrong. Secondly, a company cannot be taken to have properly executed a deed if the date of the document is a date earlier than the incorporation...
Family Trusts Part 2 – How You Can Plan for the Future

Family Trusts Part 2 – How You Can Plan for the Future

It is of great interest to us and most of our clients, how a Discretionary Family Trust dictates what will happen to their assets in the future. Most of our clients use Family Trusts as a wealth creation vehicle giving the flexibility for income distribution and Capital Gains Tax. It is really critical to understand that the assets within a Family Trust are not owned by the individual rather it is a control over the management of the trust and exercise of discretion as trustee that dictate the outcome. Consider the recent high profile case of Gina Reinhart in the dispute with her children over the control of the key trust that owned significant business interests. The “appointor” is the named individual that can appoint or remove “trustee” of the trust. The trustee has the day to day management and control of the trust and exercises discretion about business or investment decisions. However, if there is a dispute then the appointor can remove the trustee and insert a replacement trustee. It is vitally important that clients have the Trust Deed reviewed to check exactly who the appointor is and if they die, become disabled or insolvent, who in default will be appointed in that role. The last thing you want is for a trustee in bankruptcy to be controlling all of the assets and exercising the discretion to pay creditors. In addition, it is difficult for clients to dictate from the grave what will happen to those trust assets in the future on their demise. So what happens after you are dead to the property, money and shares you...
Family Trusts Part 1 – Who is in control of your Family Trust?

Family Trusts Part 1 – Who is in control of your Family Trust?

We often see Family Discretionary Trust Deeds which were set up several years (or event decades) earlier.  It is often overlooked that circumstances may have changed significantly since the Trust was established and that the ultimate controller of the Trust may not be the expected person. The case of Kniepp v Annuaka Pty Ltd  last year is a reminder of the potential risks. In that case, a Discretionary Trust established in 1991 named a deceased’s first wife as the person with the power to change the Trustee of the Trust (sometimes this person is called an ‘Appointor’). Despite divorce in 1995, the first wife’s power was never dealt with or removed. 19 years after separation she attempted to exercise her power to seize control of the Trust Fund. Although she was not successful on account of jurisdictional issue and interpretation of the specific Trust Deed in this case, the risk was real and potentially disastrous for the last family of the deceased. The person with power to change the Trustee of a Discretionary Trust can often be forgotten about over time. It is a case of ‘out of sight, out of mind’ unless the Trust Deed is reviewed periodically.   There is also a tendency to view Discretionary Trusts as ‘carbon copies’ of one another with identical functionality and governing rules. However, the precise terms of the trust deed are critical and we recommend to all our clients that Discretionary Trust Deeds are reviewed every few years to ensure it is appropriate given the current Law and individual...
Nothing is more certain than death and taxes

Nothing is more certain than death and taxes

  A very Happy New Year to everyone and I hope 2016 is amazing for you and your family. I start this year wrestling with the issue of taxation on deceased estates. It is very often overlooked by the key beneficiaries of an estate as they are always keen to get their hands on the cash. The problem is, before the Executor can make a payment, they must assess exactly what tax is payable, otherwise they will find themselves personally liable for the assessment by the ATO and no funds with which to pay the bill. With rising balances held in self managed super funds it is more than likely that there will be a death benefit payable from that as the source of funds. Before making payments the trustee must calculate the tax payable to the person based on their status as a “tax dependant” or not. A spouse will be able to receive a super fund payment without tax but a non-dependant adult child may not, subject to age, living at home status and study. It is very important a Will maker take into account the different tax consequences for different individuals when making an allocation between family members in terms of the overall estate assets, including family trusts and super. This gets even trickier when you have second or third marriage status and children of prior relationships. How do you ensure they get their share but allow the source of income to continue for the spouse? Control of a self managed super fund is critical and often the surviving spouse will want to maintain the assets...

Clarity in the Cloud

Welcome to 2015! How lucky we are to have the chance to try, yet again, to create a life that we want to live, with what we have been given. Perhaps it is a case of finding clarity in the cloud of confusion that is everyday life. This time of year, we attempt to make strong resolutions about how we will do things differently and yet it can come unstuck so very easily. I thought I would share a few of my New Year musings: Learn from last years’ mistakes; Be more careful in my decisions; Take the positive approach; Try harder at everything I do; Be kinder and more patient; Drink more tea and less alcohol. Well I seem to have busted number one already which means I failed in taking a more moderate approach to work and life. This is the human condition, but strive we must. I wanted to say something more about planning leading to greater success. Prepare a checklist, tick the boxes and TRAIN, TRAIN, TRAIN! Perhaps it is more like Zen and the Art of Motor Cycle Maintenance, which I have been reading. It is not the endpoint result that counts, it is the way the journey is travelled that is important. Either way, the best you can do is to give it your best shot. My other New Year points are: Make sure you get your legal things in order just in case; Review the important contracts in your life such as insurance, super and investments; Make a personal and business plan including a holiday as a reward; Keep your body moving...