Don't leave a mess when you kick the bucket

Our wills and fates do so contrary run, that our devices still are overthrown; our thoughts are ours, their ends none of our own.
- William Shakespeare

The Player King in Hamlet could have been summing up the problem the Prince of Denmark had with estate planning. Only a month after his father, the old King of Denmark had died, his queen had remarried – to his brother. Hamlet did not want his uncle as his step-father, not when the world was awaiting him. And to make matters worse, the ambitious prince Fortinbras was planning to invade Denmark and take his inheritance away from him. If Dad had only had a will, he wouldn’t have to appear as a ghost later to give Hamlet advice on how to deal with these problems.

Deciding how to distribute assets to loved ones is a tricky question at the best of times, and it’s even more complicated for family business owners trying to make the right commercial decision for the business, which can be different from the loyalty and duties to family members.

Some parents want to be fair and ensure that everything is split equally between the kids. But with many family businesses, particularly those on the land or started by migrants, the parent is more likely to create a will where the son gets the lion’s share of the estate, particularly if they are the heir apparent, carrying more responsibility and putting in longer hours than others who are pursuing their own direction.

But that could well be challenged. Let us say the parent wanted to be fair to the son and three daughters and divided it up 25 per cent each. The son, who had helped build the business, could lay a Part 4 claim under the Administration and Probate Act seeking more from the will. Or let’s say you give the son 90 per cent and the three daughters 10 per cent. The daughters are just as likely to lodge a Part 4 claim.

Since 1989, there has been an explosion in contested wills. Before 1989, the only people who could lodge a Part 4 were a spouse or a child. Now it can be lodged by grandchildren and friends. There have even been cases where carers have lodged claims.

They only have to prove two things: one is that the deceased had a moral obligation to provide for you and failed to do so and secondly that you’re a person of need. And it’s a real earner. In this jurisdiction regardless of the outcome, as long as the court deems you have a bona fide claim, it will invariably award costs out of the estate.

This is why many of these claims are settled out of court. Running an action in the Supreme Court will cost you a couple of hundred thousand dollars so if you institute your proceedings, you are going to get a settlement before that. The estate is better off paying you $100,000 than owing you $200,000 in legal fees.

How does a family business owner avoid this? Marvin Weinberg, a partner at law firm Meerkin & Appel, advises clients to have a conversation with their children, although he concedes many don’t want to do that.

“They don’t want to because what they are terribly scared of is telling their children ‘I’m leaving this person more than you’ because that damages their relationship while they are alive.

“But if they had done that and if the children have a healthy respect, the likelihood of them challenging is far more remote because they know the reasons. I certainly believe if people have this discussion before they passed away, while it may be difficult, it would obviate a number of challenges.”

That would explain why many might not have a will. Lawyers say the only time their family business clients start thinking about a will is when they go overseas or when they have a health scare.

If you die without a will, however, you die intestate – i.e. if there are no eligible recipients of your assets, the state is entitled to keep everything – and each jurisdiction in Australia has a rigid statutory scheme to deal with succession in the event of intestacy. Under Australian Securities and Investments Commission rules when there is no will, a near relative or other person has to apply to the Supreme Court for letters of administration to manage the estate. That could take weeks if not months. Alternatively, in the absence of any immediate relatives or other obvious people to deal with the estate, the Public Trustee may step in and administer the deceased estate. Again, this process can also take months.

Needless to say, if you have spent your working life creating assets, some thought needs to go into how these will be distributed later on. As little as anyone wants to contemplate their passing, the fundamental concept of wills remains important: how are assets to be utilised after death which, like taxes, is inevitable, excluding the bits that have to be paid to keep the tax office happy.

But estate planning is more than just the will, that’s only one component.

If the business is held in a trust, the trust document needs to be amended to state who control passes over to in the event of your death. Normally a trust is not part of the will because the trust assets are owned by the trust and a will only deals with your assets. What many do is create a Deed of Wishes telling the trustee of the trust what you want to happen to those trust assets.

Another part of estate planning is placing powers of attorney and providing delegated legal authority for another person to act on your behalf if you become incapable of acting for yourself.

Some family business owners go further and have a “Memorandum of wishes” which spells out, in extra detail, what the business owner would want to happen to their estate after their demise. The memorandum could also set out the names of assistants and advisors from whom assistance should be obtained for issues like accounting and financial planning, charities and causes the business owner wants looking after and any wishes or directions as to how infant children should be cared for.

That’s the sort of document that offers plenty of scope for payback from the grave. It might give the business owner the ability to prove Shakespeare wrong and have some control over what happens with their assets once they’re gone.