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Wealth succession

Wealth succession planning is one of the most frequently overlooked aspects of personal financial planning.  Although many people see wealth succession as something primarily of interest to the old or terminally ill, in fact it is something which should be of interest to everyone.

Lawyers often say that they make more money out of do-it-yourself wills than they do from professional estate planning.  The reason for this is because all too often amateur attempts at estate planning result in ambiguous and legally invalid documents which often lead to expensive litigation and substantial tax and stamp duty expenses. 

Wealth succession planning should be thought of as the formulation of a strategy to ensure that your assets go to the right people at the right time and with a minimum of legal expenses and no unnecessary taxes or stamp duties.

Wealth succession planning is about more than just wills.  Superannuation, jointly owned assets, assets of companies and trusts in which you have an interest, proceeds of life policies and more are all assets which normally are not covered by a will.

Also, there may be very different tax consequences depending on how assets are distributed.  Superannuation for instance can only be nominated to go to a “dependent” as defined under the SIS or Superannuation Industry Supervision Act.  The definition of a “dependent” under the SIS act is different to the definition of a dependent defined in the tax act, which is crucial because it is the tax act definition which determines whether a beneficiary of a super policy will receive the payment tax free or not.  Many super funds will not say anything at the time when you lodge a nomination of beneficiaries where the people you are trying to leave your super to are not SIS dependents and therefore not able to receive a direct payment, let alone point out when the nominated beneficiaries are not tax dependents and therefore going to have to pay substantial amounts of tax. 

If philanthropy is an issue which concerns you, it may be worthwhile bearing in mind that while gifts made while you are alive are usually tax deductible, gifts made from an estate are usually not tax deductible.  If you want to maximise the value of your gifts therefore it makes sense to plan ahead.  A gift made just before you die could be worth a lot more than the gift your estate will be able to give. 

In addition to direct gifts, there are numerous options involving various structures such as foundations and trusts, all with their own advantages and disadvantages.

Business owners should make plans for succession of their business.  This makes sense for a number of reasons.

  • Business succession planning can increase the value of a business because many of the changes initiated during the formulation of a succession plan are simply good business.  Depending on how it is done, succession planning can motivate key staff to think of themselves as future owners, giving them an owners-eye view of expenditure and productivity, improve staff retention rates and more.  Business succession planning often involves documentation of procedures, implementing appropriate information technology systems and other changes which can make businesses more attractive to a potential buyer.  Often business succession planning means the difference between a business being sold as a viable going concern, or a liquidation with the firesale of assets and customers.
  • Business succession planning helps keep the business under the management of business people who know best how to run it.  It is all too often that when one partner dies or is incapacitated part or whole control of the business falls to spouses or family members who may have very strong views on how the business should be run differently, resulting in conflict between the old and new partners which in turn may lead to alienation of staff and customers and the eventual destruction of the business.  This is unfortunately quite common, with numerous previously thriving business failing as a direct result of the death of a partner.  A business succession plan incorporating independent business valuation, appropriate levels of life and disability insurance purchased by the business and a buy/sell agreement can ensure that the deceased partner’s share in the business is sold at a fair price to the other partners and the deceased partner’s estate being fairly compensated.
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