For business owners, it’s important to think ahead and not only protect the wealth of your business but also to protect your family. Being a business owner means you probably have a million things on the go but although you’re really busy, don’t ignore your own family’s needs.
Give me the main points
- Don’t leave your will to the last minute – make sure your money and assets go to your loved ones.
- Different business structures have different requirements – it’s unlikely these issues can be dealt with in your will.
- Get on top of your super and make sure you allocate it to a loved one.
When you don’t have a will
Western Australian Public Trustee says in 2014, only 35% of adult Australians and 19% of families with young children had a current will.
If you don’t have a will in place when you die, or your will is invalid, you’re considered to have died ‘intestate’. This means an administrator appointed by the court pays your bills and taxes from your assets. They distribute whatever is left according to a formula.
So your assets may end up in different hands to those you intended. If you die intestate and don't have any living relatives, your estate goes to the state government. Cameron Research Group explains only 10% of business owners have a documented succession plan (sometimes known as a 'business will' or 'Buy Sell Agreement'). Taking time to properly consider how you want your wealth managed means your family will be provided for after your death.
Your assets generally fall into two categories – non-estate assets and estate assets.
Estate assets are dealt with under your will. These include personal items like jewellery, cars, cash, shares, property, loans and debts.
Non-estate assets aren’t dealt with under your will automatically. They need to be specified if they’re to be passed on as you wish. These include super, insurance benefits, family trusts and company assets.
What different business structures mean for your assets
This is the easiest business structure; you note your assets in your will and allocate them to your beneficiaries. This can be family members or friends. You can’t specify how your assets will be used because control of your assets is given to the beneficiary.
You’ll need to keep in mind that, in the case where you need to sell your business, you can’t split the capital gain between family members, and a capital loss will impact the beneficiaries’ personal assets.
To protect your share of your partnership, you’ll need your equity noted in a partnership agreement. Then your interest in the partnership can be passed on in a will. If you don’t do this and you retire or die, your interest in the business may go to the remaining partner/s.
Your business assets are owned by the company rather than individual shareholders. If you’re a company director, your shares can be passed on through your will. But, if you own your shares via a family trust, control will be passed in accordance with the trust deed. Usually a shareholders' agreement will give your fellow directors or shareholders the right to buy your share. It will also detail voting rights or the right to receive dividends and capital.
Think carefully when dividing assets between family members
There can be challenges dividing your business assets among family members and friends. For example, you might want to leave your business to your two children, but one has no interest in being part of the business.
An unfair burden is placed on the other child, who may need to raise funds to buy out their sibling. This can be taken care of by making sure other assets of the same value as your business asset are passed on, such as a life insurance policy.
Don’t forget your super - it’s an asset too
One of the most important assets business owners have is superannuation. Many people don’t think about what happens to their super after they die, but your super fund decides who gets your super if you don’t. If you don’t want this to happen, you can set up a binding nomination with your superannuation provider.
This allows you to nominate who gets your super after you die with greater certainty. You can nominate family members (such as your spouse or children) financial dependants, even your estate – you should seek advice about the most appropriate option.
Getting the right advice
There’s a lot to think about if you’re a business owner, so advice and guidance is critical. Talk to an expert like a financial adviser - they’ll be able to help give you the best outcome, drawing in other professionals such as a specialist solicitor and your accountant. So you can be confident that all the work you’ve put into your business goes to the people you care about most.