Estate planning

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Estate Planning involves two elements:

Preparation of your Will;
Because your Will can only deal with assets you own in your personal name, dealing with assets owned in entities you control or have an interest in (Non-estate Assets).

Effective Estate Planning

Implementation of an effective estate plan requires a structured process tailored to the individual’s particular circumstances:

Identify the estate (not limited to personally owned assets but also including non-estate assets);
Identify the intended recipients (children or beneficiaries).
Choose how you will split up your estate or whether it will be maintained as a pool for the benefit of all intended recipients.
Choose the form of Will – Standard, Steps Law Testamentary Trust, Steps Law Protective Trust.
Restructure your non-estate assets (if necessary) to allow them to be passed to the intended recipients.
Pass the assets to the intended recipient in a manner that is tax effective, protects the inheritance from claims and protects the inheritance from loss on the demise of the intended recipient.

An effective estate plan should be implemented in conjunction with your solicitor, accountant and financial planner.

Your Will

The usual approach when implementing an estate plan is to pass the assets into the personal name of the intended child (often called a Simple Will). Such an approach has a number of disadvantages:

All of the income will be subject to tax in the child’s personal name, increasing their tax bill;
Because all of the assets will be held in the child’s personal name, they will be exposed to any risk that the child may be subject to, such as loss as a result of financial difficulties, business failure or bankruptcy, as well as divorce.

Our approach to estate planning is focused on structuring the ownership of your assets for the benefit of the intended child in a manner that follows the core structuring principles:

Tax – allows the splitting of income among family members;
Flexibility – provide flexibility that allows changes without incurring restructure costs- for example, transfer control to other family members without tax impost;
Asset Protection – protect the inheritance from loss in the event of bankruptcy of any of the family members or exposure to litigation or other claims against any of the family members.

A properly drafted Testamentary Trust can provide the above structuring advantages.

Divorce – Protection from divorce is not so easy to obtain. The High Court in the case of Kennon v Spry [2008] HCA 56 clarified when trust assets are taken into account. The effect of the decision is where one or both of the parties to the marriage has control of the trust and is also a beneficiary, the assets will be considered property that may be subject to an order of the Family Court. However, properly drafted in appropriate family circumstances, a Steps Law Protective Testamentary Trust can prevent the assets of the trust being available on divorce.

We can assist with:

Standard Will – passing your assets to the intended recipients
Steps Law Testamentary Trust – providing taxation advantages and limiting claims by creditors
Steps Law Protective Testamentary Trusts – providing additional protection against divorce

Non-estate Assets

A significant problem in estate planning involving non-estate assets are situations where the one entity (say a private company or family trust) owns several assets and you wish to pass one asset for the benefit of one child and the other assets for the benefit of another child.

The usual approaches to dealing with non-estate assets often trigger CGT and stamp duty implications.

This is because the usual approach is to transfer the assets into separate entities, which triggers CGT and stamp duty liabilities.

There are often alternatives that enable the assets to be split into separate entities without triggering these liabilities, or alternatively for the children to have the benefit of the assets.

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[restab title=”Estate Planning” active=”active”]
Estate Planning involves two elements:

Preparation of your Will;
Because your Will can only deal with assets you own in your personal name, dealing with assets owned in entities you control or have an interest in (Non-estate Assets).

Effective Estate Planning

Implementation of an effective estate plan requires a structured process tailored to the individual’s particular circumstances:

Identify the estate (not limited to personally owned assets but also including non-estate assets);
Identify the intended recipients (children or beneficiaries).
Choose how you will split up your estate or whether it will be maintained as a pool for the benefit of all intended recipients.
Restructure your non-estate assets (if necessary) to allow them to be passed to the intended recipients.
Pass the assets to the intended recipient in a manner that is tax effective, protects the inheritance from claims and protect protects the inheritance from loss on the demise of the intended recipient.

An effective estate plan should be implemented in conjunction with your solicitor, accountant and financial planner.

Your Will

The usual approach when implementing an estate plan is to pass the assets into the personal name of the intended child (often called a Simple Will). Such an approach has a number of disadvantages:

All of the income will be subject to tax in the child’s personal name, increasing their tax bill;
Because all of the assets will be held in the child’s personal name, they will be exposed to any risk that the child may be subject to, such as loss as a result of financial difficulties, business failure or bankruptcy, as well as divorce.

Our approach to estate planning is focused on structuring the ownership of your assets for the benefit of the intended child in a manner that follows the core structuring principles:

Tax – allows the splitting of income among family members;
Flexibility – provide flexibility that allows changes without incurring restructure costs- for example, transfer control to other family members without tax impost;
Asset Protection – protect the inheritance from loss in the event of bankruptcy of any of the family members or exposure to litigation or other claims against any of the family members.

A properly drafted Testamentary Trust can provide the above structuring advantages.

The greater advantage is that asset protection benefits of a properly drafted Testamentary Trust. On the making of the claim resulting from the accident, the assets of the Testamentary Trust are not available to the claimant (see Asset Protection).
Divorce – Protection from divorce is not so easy to obtain. However, properly drafted, trusts can prevent the assets of the trust being available on divorce. In appropriate circumstances, a properly drafted trust can fall outside the principles of the decision in the High Court of Kennon v Spry [2008] HCA 56.

Non-estate Assets

Non-estate assets are assets that you do not own in your personal name but assets owned in entities you control or have an interest (private companies, partnerships, family trusts, discretionary trusts, private unit trusts, self-managed superannuation funds).
A significant problem in estate planning involving non-estate assets are situations where the one entity (say a private company or family trust) owns several assets and you wish to pass one asset for the benefit of one child and the other assets for the benefit of another child.
The usual approaches to dealing with non-estate assets often trigger CGT and stamp duty implications.
This is because the usual approach is to transfer the assets into separate entities, which triggers CGT and stamp duty liabilities.
There are often alternatives that enable the assets to be split into separate entities without triggering these liabilities, or alternatively for the children to have the benefit of the assets.
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For some advisers, Succession Planning is merely about a Buy/Sell Agreement.

At Steps Law we consider Succession Planning as concerned with a range of circumstances involving the control and ownership of a business, or interest in a business. These include:

Passing ownership of the business to the next generation of family members
Introducing a key employee or equity participant into the ownership of the business
Selling out the whole or interest in the business to key employees, which may involve a management buyout
Employee incentive arrangements
Developing an exit strategy for sale of the business that allows realisation of the maximum after-tax value
Restructuring of business ownership to maximise access to the small business CGT concessions
Where more than one family is involved (business partners), regulating the transition on the exit of a business partner, whether by death, permanent disability, voluntary exit or some other circumstance.

Each of the above purposes has a different set of issues.

We can assist with solutions that allow the passing of ownership of the business to the next generation in a tax effective manner.

When introducing key employees/equity participants, the usual approach may involve a sale and vendor finance. The downside of these arrangements is if the key employee fails to perform the structure needs to be unwound resulting in double stamp duty and tax issues. At Steps Law, we offer alternatives to avoid this double tax result.

Where business partners are involved it is always recommended to have an agreement between equity participants to regulate the transition on exit. We can assist with a Buy/Sell Agreement, Unit holders Agreement, Shareholders Agreement and Governance Agreement.
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