As a small business owner in Western Australia, managing and planning for the future of your business is crucial. One often overlooked aspect of business continuity is estate planning, specifically having a valid and up-to-date Will. A Will not only ensures that your personal assets are distributed according to your wishes but is also vital for safeguarding your business. Without a proper Will, your business may face serious complications in the event of your passing, potentially leaving your family, employees, and business partners in financial and legal turmoil.
Key Reasons for Having a Will as a Small Business Owner
- Ensures Business Continuity If you pass away without a Will (dying intestate), your business assets may not be distributed according to your wishes. The laws of intestacy in Western Australia determine how your estate is divided among your family members, which may not align with your intentions. For instance, a portion of your business might be passed to family members who have no interest or expertise in managing it, potentially disrupting its operation. A Will can ensure that your business passes to a specific individual, such as a business partner or a family member, who is capable of continuing its operations.
- Minimises Family Disputes A clear and well-drafted Will helps to minimise disputes among family members. Without a Will, there is a higher risk of disagreements about who should take over the business or how it should be managed. Disputes can lead to costly legal battles and could jeopardies the survival of the business. By outlining your wishes clearly in a Will, you provide a clear direction on how your business should be handled, reducing potential conflict.
- Protection for Beneficiaries Having a Will allows you to put structures in place, such as creating a testamentary trust, which can help protect your beneficiaries. This is particularly important for small business owners whose business is a significant part of their estate. A testamentary trust allows your beneficiaries to benefit from your business without having direct control over it, providing protection from creditors, bankruptcy, or family law disputes.
- Tax and Financial Planning A well-planned Will can help minimize tax liabilities for your beneficiaries. For example, transferring business assets through a Will in a tax-efficient manner can reduce the burden of capital gains tax or stamp duty, ensuring more of your wealth goes to your chosen beneficiaries. Additionally, you can plan for the liquidation or sale of the business if necessary, ensuring that your loved ones do not inherit a burden they cannot manage.
Complications Posed by Family Trusts
Family trusts are a common estate and asset protection tool used by many small business owners in Western Australia. However, when a family trust is involved, there can be complications that affect the distribution of your estate and business after death.
- Control and Succession Issues A family trust holds assets on behalf of beneficiaries, and these assets are managed by trustees. If you are the primary trustee or the person who controls the trust, the control of the trust does not automatically pass through your Will. Instead, the succession of control of the trust must be addressed separately, often
through a deed of succession. Without a clear plan in place, disputes could arise among beneficiaries or family members over who should control the trust and, therefore, the business. - Trust Assets vs. Personal Assets Assets held in a family trust are not considered part of your personal estate, meaning they cannot be distributed according to your Will. If the business or business-related assets are held in a family trust, you need to ensure that the trust deed specifies how those assets should be managed after your death. This can
complicate estate planning, as it requires careful coordination between your Will and the trust’s deed to avoid conflicts or unintended consequences. - Beneficiary Conflicts If you have set up a family trust, it’s important to note that different beneficiaries may have competing interests in the trust’s assets. In the case of a small business, one family member may want to continue running the business, while others may prefer to sell it or liquidate their shares. These conflicts can be difficult to
resolve, particularly if the trust deed does not clearly outline how business decisions should be made after your death.
Key Considerations for Small Business Owners with Family Trusts
If you own a small business and have set up a family trust, it is critical to take the following steps:
● Review the Trust Deed: Ensure that the trust deed allows for the smooth transition of control in the event of your death. This may involve appointing a successor trustee or creating a plan for how the trust should be managed.
● Coordinate Your Will and Trust: Work with an estate planning lawyer to ensure that your Will and the terms of your family trust complement each other. This will help avoid conflicting instructions and ensure that your wishes for both your personal and trust-held assets are clear.
● Plan for Tax Implications: Consider the tax implications of transferring or selling business assets within a family trust, and discuss strategies with a tax advisor to minimize the financial impact on your beneficiaries.
Conclusion
For small business owners in Western Australia, having a comprehensive estate plan, including a Will, is essential. It not only protects your business but also ensures that your loved ones are provided for in line with your wishes. If you have a family trust, additional care is needed to manage the succession of control and distribution of assets. By taking proactive steps, you can reduce complications, protect your business, and provide peace of mind for your family. Should you wish to arrange an appointment to discuss your estate planning further then please do not hesitate to contact Paul Coombs on 0433806146 or paul@coombslegal.com