When assets are held in a trust, company or superannuation fund, they also need to be brought into your estate plan. Documents other than your will are usually necessary. In a good estate plan, normally your executors also control your entities, for consistency.
If you own or control a trading or investment company, important decisions need to be made about:
– who will own or control the company shares
– who replaces you as director
– how you want the company’s investments or business to be managed. (Note: Business Succession Planning is a large topic in itself, and not considered in detail here).
– how you want income and capital distributed.
If independent persons are your executors, they will generally not act as directors of your companies. Usually, the spouse or a child or children become directors. The executors can still control the company, by holding (but not owning) the shares. This is so that they can control that the directors are carrying out your wishes.
The company’s constitution needs to be reviewed as part of your estate plan. Changes may be needed, including:
– dispute resolution between directors
– important decisions are referred to the shareholders (i.e. executors). For example, selling or mortgaging assets.
No family member owns the assets held in a discretionary ‘family’ trust. The trustee holds the assets and chooses who to distribute income and capital to. Therefore, control of the trustee is important. Control of a trust is determined by its deed. Your estate plan lawyer will need to read and understand the deed and what documents will be needed to ensure control passes as intended.
Children might have day-to-day control of trust investments, but your executors (if different) should make the final decision about income and capital and other important decisions. If independents have that control as executors, this potentially protects trust assets from your children’s ex-spouses.
Superannuation Fund
Many people now have large wealth in superannuation. When you die, your superannuation balance must be paid:
– directly to any of your spouse and children; otherwise
– to your estate and distributed (or controlled) under your will.
There are a number of complex tax and estate planning reasons to consider when deciding who to pay your superannuation to. You can either:
– give binding directions as to how your superannuation will be paid; or
– allow the trustees of your superannuation fund to decide where to pay your superannuation.
There are advantages and disadvantages to each. A binding direction is inflexible and needs to be reviewed often. If circumstances change after your death (for example, a child separates) it can have bad consequences. Also, laws may change and a binding nomination may lead to higher taxes.
Flexibility also has its issues. If you have a self-managed fund, it is harder to ensure the right persons hold the power to decide where to distribute your superannuation. With a market fund, there is risk of your family fighting over who should receive payment. There may be a costly and lengthy court case before the market fund decides what to do.
All of the issues surrounding control of your assets, whether they are in a company, trust or superannuation fund, need to be carefully considered against your goals and the right plan chosen. Once chosen, the plan needs to be carried out carefully and skilfully, with the right documents.
If you have any questions or require further information please do not hesitate to contact Harry Giannakidis on hgiannakidis@millsoakley.com.au