Growing wealth is for nothing if it’s not protected. Business View talks to Troy Palmer, National Manager Estate Planning at NAB Private Wealth, about the importance of succession and estate planning, and how to protect your assets.

Considering approximately 50 percent of Australians have executed a will, you’d think these virtuous few could afford to pat themselves on the back. Not so. Of those who do have some form of a will in place, only about half again manage to address all the necessary issues, estimates Troy Palmer, National Manager Estate Planning at NAB Private Wealth. Many are likely to misunderstand the complexities surrounding ownership, while the issues of incapacity, asset protection and tax effectiveness are often ignored altogether.

For small business owners who are keen to ensure a clean succession, it’s important to understand that comprehensive estate planning goes beyond a quick do-it-yourself solution, says Palmer. While a will can leave you better off, a poorly scripted one can be worse than nothing at all.

Preparing for the worst

Palmer says that most small business owners focus on growing their wealth. Far fewer consider protecting it. “The wealth accumulation piece seems to be more of a priority than the succession piece,” he comments.

The problem is, your carefully grown business is likely to flounder the minute no one is there to take your place or if there isn’t a solid succession plan in place. “A small business owner needs to ensure there’s a replacement for them if the business is to be an ongoing concern,” says Palmer. That includes the day-to-day running of the business, as well as ensuring there’s someone available to sit on the board, where appropriate.

Careful estate planning is also important for maintaining family harmony. Above all, it’s about clear communication. Palmer suggests it may be appropriate to get your children involved in the estate planning process at some point – allowing them to attend meetings or at least walking them through your estate plans once they’ve been implemented.

There are external conflicts to consider as well. Says Palmer: “If you’re in business with another individual and your business partner passes away, what happens to his/her equity in the business? If you don’t have a properly constructed business succession plan it may well be that your business partner’s share passes to a beneficiary who doesn’t understand your business. In that situation you really need legal boundaries around what they can and can’t do.”

Then there are tax implications to consider proper estate planning can help ensure tax and asset-protection advantages for beneficiaries, says Palmer.

Not enough thought is given to the issue of incapacity either. You may accept that eventually you’ll die. But what thought have you given to the future of your business if suddenly you can no longer work or indeed function? Or what happens to your related self managed superannuation fund if you lose capacity to act as a trustee? Palmer says it’s critical to consider who’ll make all the decisions for you if you no longer have the capacity, whether from a financial, medical or social/guardianship perspective.

What’s mine is not yours

Before you plan to devolve your assets, however, you need to understand who they belong to. Do you hold them individually or are they held jointly, or by a company or family discretionary trust? “Quite a few clients don’t understand how their assets are held,” says Palmer. Unfortunately, it matters.

Who gets your superannuation, for instance? Palmer points out that super is, in effect, a type of trust. This means that should you pass away, a will won’t automatically dictate where your super death benefits will pass to or who will inherit them. “It depends whether you have a self managed super fund or an industry-type retail fund,” says Palmer, “and whether you have binding or non-binding nominations in place to cover off who the beneficiaries of your super will be.”

Then there are the complexities of a family discretionary trust. “I have a number of clients who will hold X amount of assets in that trust and they want to leave them to persons A, B and C,” says Palmer. “They can’t do that.” That’s because they don’t own these assets. “They’re owned by the trustee of that trust,” explains Palmer, “and it really depends on what’s in the trust deed of that particular trust and whether there’s a corporate or individual trustee, and what the succession of that layer looks like if the person passes away.”

Assets which are jointly owned or owned in partnership also have to be carefully considered. Again, it’s an area that clients aren’t 100 percent across, says Palmer. “For example, if you own a piece of real estate jointly with your wife and you pass away, it automatically goes to your wife, regardless of what you have in your will.”

This is also generally the case for other jointly owned assets. They automatically go to the survivor.

Getting started

To begin the estate planning process, you need to have a broad understanding of how you wish to leave your wealth, says Palmer.

You then need the involvement of specialists to help flesh out the issues. This is particularly important if you’re in a blended relationship. Yet even the most benign state of affairs can run into difficulties. Consider if you wish to leave your estate equally to two children. On the face of it, this looks deceptively simple: 50 percent each. But you need to understand what the inheritance looks like in the beneficiaries’ hands, says Palmer. “If your children are minors when you pass away, what age should they take control of the assets? If they take control of their inheritance at 25 years old, should the assets go into their own name or continue in a trust so if they’re married or in a de facto relationship and that breaks down there’s a better level of protection?”

If you do choose to use your family lawyer, first check he or she is well versed in estate planning. “It’s such a specialised area,” says Palmer. “Get a professional who has expertise in that area. A lot of our work is created if a plan hasn’t been properly implemented – unwinding all the issues that haven’t been done correctly in the first place.”

You might also want to bring your business banker, financial adviser and/or accountant on board if you aren’t clear about how your assets are held.

But don’t be daunted, says Palmer. “For the most part, it’s not too difficult. It’s quite confronting initially, but once people have started the process there are lots of advantages.”

More information

• Business View magazine.
• For more tips and insights from Troy Palmer, including footage of the interview, download the iPad edition for free via our new app NAB Think.