Business owners should be aware that such risks are just as important as any other business risk, such as potential creditor claims, employee claims and public or product liability claims. However, in our experience, this is seldom the case.
An unexpected death, critical illness or incapacity can create significant problems with the business operation, give rise to unnecessary taxation and lead to benefits or control going to the wrong persons, which may lead to costly disputes.
Furthermore, other key persons in the business may find themselves entangled with a deceased's family, with whom they may have little or no working relationship.
Preventative estate planning can be a crucial factor in reducing the impact of such events on businesses and to the people who work in them. Below are three practical estate planning strategies worth considering to shore up your business, no matter what the future should bring:
Business structure and control
One recommended step is to review and consider the appropriateness of existing business structures and control of the business.
This should involve a thorough consideration and understanding of how the business is owned and operated to ensure that the transfer of assets and control of the business is orderly, and the process is managed to the maximum benefit of the deceased's estate, family beneficiaries and other key persons in the event of any sudden death or incapacity.
You might consider structuring the ownership of assets of the business in such a way as to reduce or eliminate other commercial risks. One option would be to use registered security interests, holding entities and licensing to corral business assets like plant, equipment, premises and intellectual property from trading activities.
Make the appropriate plans
The second step is to plan for management and ownership succession and assign roles and responsibilities. This may entail planning for a future change of trustee and appointors of trusts, the selection of executors and beneficiaries, the appointment of alternative directors, and the appointment of attorneys and corporate attorneys.
Depending on the nature of the business, succession planning will often require preparing other documentation in addition to a will, such as shareholders agreements and buy-sell agreements, in addition to reviewing and updating trust deeds, partnership agreements, leases, licences and superannuation death benefit nominations.
Simply leaving assets in a will can expose the business to any potential estate claims from disgruntled family members or other eligible persons. Where a family provision claim is anticipated, the success of that challenge will depend upon the nature of the business ownership and the effectiveness of any succession plan.
Funding and taxation
A third point to consider in creating an estate plan for your business is funding and taxation. A lawyer will often need to work closely with other professionals, such as accountants and financial advisers, to ensure that the estate plan is appropriate and effective for minimising taxation and other potential transaction costs.
In addition, ensuring that where appropriate, such planning funded through the use of insurances will help to minimise or avoid any unintended inequalities and potential impact on the ongoing business liquidity and cash flow.
The importance of estate planning for business cannot be understated. If the owners of a business choose not to plan early, succession may be triggered by an event over which they have no control, meaning that fewer options will be available.
All planning should address the unique characteristics of a business, as well as the specific and individual wishes and objectives of its owners. This may take a variety of forms and strategies, depending on the circumstances, and may traverse the areas of legal, accounting and financial advice.
Even if you and your business partners are young and in robust health, you owe it to the business and to one another to have a well-considered and comprehensive estate plan for your business to improve its chances of survival, no matter what stormy weather life may bring.
Nathan McEwan (pictured left) and Kurt Topper (pictured right) are lawyers in the estate planning and family law teams at Stacks Heard McEwan.