Estate and succession planning are how you put in place an exit strategy for your life and your business. Unfortunately far too few Australians are comfortable in talking (or even thinking) about their exit strategy – until it is too late. This can have significant financial and emotional effects on them and their family.
A recent report by Charles Sturt University and the University of Adelaide1 found that only about 55% of the Australians surveyed had a current up-to-date will, and only about 25% of business owners surveyed had a formal business succession plan.
With an aging population and a changing economy, some are predicting that control of almost $3 trillion will change hands in Australia over the next 10 – 20 years2. By implementing proper estate and succession plans, business owners can mitigate the taxation, asset protection and other implications of significant wealth transfer.
What should an exit strategy deal with?
For business owners, estate and succession planning are inextricably linked – especially when the business is owned by another entity (such as a company/trust).
Exit strategies should address both voluntary departures (such as retirement or sale of business) and involuntary departures (such as death, illness or injury). For businesses that are controlled by more than one individual, it is often prudent to plan for things such as the relationship breakdown of one of the controllers, or an irreconcilable dispute arising between the controllers.
Who should be involved in developing the exit strategy?
Depending on the specifics of the situation, estate and succession planning may require the input of a number of stakeholders and advisors. Of course the relevant individuals will make the ultimate decisions about the plans, but depending on what the strategy is, they may include their children (and other relatives) key employees or other potential business owners/operators in their plan. In terms of professional advisors, Ballantyne Law Group will seek the input of professionals such as accountants, financial planners and other risk professionals when preparing estate and succession planning documents.
What sort of things are included in an estate or succession plan?
There is no “one size fits all” approach to estate and succession planning, and you should be wary about using pre-existing on-line templates. An effective estate plan will generally include a will (which could be a conventional will, a will incorporating testamentary or other types of trust, a mutual or contractual will, or some other combination) and an enduring power of attorney, and may include other documents such as memoranda of wishes, instructions to guardians and executors’ dossiers.
Business succession plans may include things such as shareholders’ agreements, insurance funded buy/sell agreements, general powers of attorney and other legal documentation. Appropriate business succession planning may also contemplate implementing business restructures and the consideration of tax and asset protection strategies.
When should you put in place an estate and succession plan?
In an ideal world, the best time to start thinking about your exit strategy is when you first go into business. This will allow you to consider the taxation and other implications of your exit strategy (whether it be sale, transfer on death or something else) without having to incur the potentially high costs of restructuring.
If you are already in business, it is not too late to consider your exit plan.