Estate Planning: Q&As for Small Business Owners

Estate planning is about more than just money. It's about protecting your family's future and leaving behind a legacy that reflects your values and priorities. 

While it may not be the most cheerful topic to think about, it’s a crucial step in ensuring your loved ones are taken care of when you're no longer able to do so yourself.

But what does estate planning involve? Here, we answer some of the most common questions to help you do it properly – and tax effectively. 

What is estate planning?

Put simply, estate planning is about planning for your demise. It involves developing a strategy to deal with your assets and financial affairs after you die. 

The process of estate planning often includes creating wills, trusts, powers of attorney and other documents. An estate plan also involves minimising taxes and other expenses that may arise during the transfer of assets.

Why is estate planning important?

Estate planning and the preparation of a will are important as they ensure your wishes regarding your property and beneficiaries are carried out. 

It’s estimated that over half of Australians will die without a will, which is legally called dying intestate. If you pass away without a will in place, the rules vary depending on what state you live in. 

Here in NSW, an application must be made to the court. The court then grants administration to an administrator who confirms who is entitled to a share of the estate. Typically, it’s family members, such as the spouse or children.

How do I prepare a will?

As a will is a legal document, it needs to be prepared by a lawyer to make sure it’s legally binding. You should also consult with your accountant to ensure it’s structured as tax-effectively as possible. 

Here’s the best way to go about your estate plan: 

• List your assets and liabilities – Including bank account balances and those that you may own in other entities, for example, companies, partnerships, trusts and self-managed super funds (SMSFs).
• Look at the ownership structure of assets – Your lawyer and accountant will help navigate the structure of your will to allow assets or control of those assets to be transferred to your beneficiaries in the most tax-effective way.
• Think about who you want the assets to go to – for example: 

           - Are there specific assets for specific beneficiaries?

           - Do you want to split your estate between a number of beneficiaries or in a different portion?

           - What happens if those beneficiaries are not alive at the time? Who then?

           - Do you want to leave anything to charitable or community organisations?

Your will and beneficiary designations are central to the estate planning process. 

What’s the best way to bequeath assets to children under 18?

If your child earns income above the minor amount (currently $416), they may pay tax at the highest possible rate. 

Testamentary trusts are a beneficial structure to consider in estate planning for tax minimisation, asset protection and also further succession of the beneficiaries. 

If assets are left to your child via a testamentary trust, and they then earn income from the trust, normal tax rates apply. This could save significant tax!  

A testamentary trust also provides asset protection for the beneficiaries. 

A bloodline trust in conjunction can also provide for the assets only ever to be bequeathed to your blood relative. 

How do I deal with my business in my will?

This depends on business ownership as follows:

• Business personally owned – You can bequeath it.
• Business owned in a partnership – The partnership will cease upon your demise. Plan accordingly! 
• Own shares personally in a company – You can bequeath them.
• Shares owned by a trust (e.g. family trust) or business owned by a trust – Seek professional advice to ensure the control of the trust is passed to your beneficiaries and/or consider alternative options. 

Our overarching advice is to put a plan in place to deal with the succession of your business in the circumstances of an unplanned event.  This should be prepared in consultation with your lawyer and accountant. 

How do I deal with superannuation funds in my will?

Again, careful planning is required as superannuation assets (whether in SMSF or otherwise) are not dealt with directly by your will. 

A Binding Death Benefit Nomination (BDBN) should be completed that instructs the trustees of the super fund on how you want your entitlements dealt with.  This can leave super assets to a beneficiary direct or directed back to your estate and dealt with in your will. 

How do I deal with real estate property?

This depends on how the property is owned as follows:

• Joint tenant – The asset automatically passes to the surviving joint owner. The same applies to any jointly held asset. 
• Tenants in common – Each owner individually owns their share, which can be bequeathed to beneficiaries. This is common and recommended where non-related parties own joint assets. 

What is an executor?

An executor is a person or organisation responsible for managing your assets and carrying out the directions and wishes you make in your will. 

You can have more than one executor of your will. There are several reasons you might choose to have more than one, including:

• Shared responsibility – Distribute the workload and responsibility associated with executing your will.
• Expertise – Leverage different skills and expertise, especially if your estate is complex or involves various types of assets.
• Availability – If one executor becomes unavailable or unable to fulfil their duties, having others appointed can ensure your wishes are still carried out.

It’s worth considering independent executors to be included where potential conflict could occur or if your will is particularly complicated.

What is a trustee?

A trustee is responsible for managing assets held in trust for the benefit of beneficiaries. Their duties can include investing trust assets, distributing income or assets to beneficiaries, and ensuring the trust is administered in accordance with the terms of the trust deed or will.

Unlike an executor, whose role ends once the estate is distributed, a trustee may continue to manage the trust for an extended period, depending on the terms of the trust.

In some cases, the same person or entity may be appointed as both the executor of an estate and the trustee of a trust established by the will.

As with the executor, it’s important to consider the most appropriate trustees of testamentary trusts that may be in your will.

Make more informed decisions

We hope these Q&As have helped answer some of the questions you had about estate planning and will enable you to make more informed decisions regarding your will. 

By understanding the key concepts and considerations involved and bringing in estate planning professionals to help you, you can take proactive steps to protect your assets as a small business owner, ensure your wishes are carried out, and provide for your loved ones in the future.

Don’t forget to also consider life insurance policies as part of this process. And, make sure you keep your will up to date to reflect any change of situation. 

Reach out to your Maxim Advisor or contact our team today for strategic and structuring estate planning advice.