Planning for success

Personally owned assets

Succession planning for your personal affairs includes deciding the future of your personally owned assets, from the family home and cars to jewellery and art collections. Do you want these to be sold? Do you want them passed on to a particular person? Clear plans for personally owned assets ensure your belongings end up where you want them, and prevent conflict between family members and friends.

Legacies

Do you want to leave an income stream for your children? Do you want to provide for your grandchildren's schooling? Would you like to set up a bequest or scholarship? A succession plan can ensure these requests are followed through.

Superannuation and life insurance

Both superannuation and life insurance are outside your personal estate and not automatically covered by your will. A succession plan can include a death benefit nomination, ensuring your super or life insurance proceeds are distributed in accordance with your wishes.

Life insurance

Again, life insurance sits outside your personal estate and can't be included in your will. If you have life insurance in place, it's important to ensure you have a named beneficiary – otherwise your insurance payout will dissipate.

Power of attorney, enduring guardian

Appointing a power of attorney and an enduring guardian as part of your succession plan ensures that someone of your choosing handles your financial affairs and health and lifestyle choices should you become incapacitated.

Management

Private business owners often are the business, holding the knowledge and know-how that makes their business a success. To ensure a smooth transition during the succession process it's imperative management is properly prepared to take over the day-to-day running of business operations.

Control

Do you know who will take control of your business in the future? Does your family want to be involved? Does your business partner want to take over, or will there be a sale? If you want to exit the business and retire, how will you fund your retirement? Have you considered private equity? Asking the right questions and putting the right structures in place will ensure a smooth transition and maintain the value of the business.

Ownership

Often a private business will be owned in a company structure. Who will own your shares in the future? Are you going to pass them on in your will, or pass them on beforehand so ownership is transferred prior to your passing? Perhaps you might sell your shares to a third party. Whichever transfer of control you choose, having a succession plan in place will ensure your wishes are followed.

Review structures

Private businesses can have complex structures, with numerous entities and trusts set up to handle different areas of the business. A periodical structural review as part of your succession plan will ensure dormant entities are identified and the business is operating effectively.

Legal agreements

Relevant legal agreements such as shareholder deeds, partnership deeds and buy/sell agreements will help those left behind handle the day-to-day running of the business and will prevent potential disagreements between owners and family members.

Appropriate structures

Asset protection simply means employing strategies to protect your assets from any legal claims mounted against you. An important aspect of asset protection is having the appropriate structures in place, so that the assets are not owned or directly controlled solely by you, especially if you are at risk of being sued.

Legal agreements

To protect the future of your business you need to ensure you have correct and up to date legal agreements in place, including buy/sell agreements. If you have a family trust or a self managed super fund, a review of your legal agreements will ensure your deeds and any other legal documentation is up to date.

Separation of passive and active assets

You should consider holding your investment assets and your business assets in separate entities, so in the event that one is at risk, the other is safe.

Independent control of trusts

There have been a number of cases in previous years where assets held in trust by a sole controller have been seen as that individual's personal assets. To avoid this risk, consider whether trusts should be controlled by two or more individuals.

Family governance agreements

How are you going to pass on your wealth to the next generation? Can you be sure there won't be any disputes? Family governance agreements – like a constitution for families – are being increasingly put in place by families to mitigate the risk of conflict. The Agreement can set out how the family makes decisions, how many family members are needed to make important decisions versus less important decisions, and when the shareholders make decisions. A vote might also require a board including family members plus accountants, lawyers or family advisors.

What level of involvement will the next generation have?

What happens if a family member doesn't want to be involved in running the business but then feels left out when major decisions are made? Perhaps you believe members of the family involved in the day-today running of the business are needed to make smaller decisions, but the entire family is required to vote on major decisions. A family governance agreement can also cover the future decision-making process for the business in this situation.

Preservation of capital and financially assisting next generation

How will you preserve the family capital while still financially assisting the next generation? The delicate balance between preserving the family or business capital and providing for the next generation can often be reached when the correct structures are in place.

Philanthropy

The next generation often has a philanthropic focus. Will you set up a private ancillary fund? Who will sit on the board? Who decides which philanthropic interests will take priority? And how will this fit into the family structure? While succession planning might be a difficult process, a well considered plan may deter future conflict and ensure that your hard work continues reap reward for you and your family during your retirement years and beyond.