Business Owners Shouldn’t Neglect Estate Planning
Business owners usually have some sort of a business plan. They also frequently have key-person insurance in place. Some even have a succession plan in mind, even if they have not fully articulated it or have set up the business in a way that helps them achieve their plans. But even if business owners have all such risk management approaches in place, the chances are they still do not have a properly developed estate planning approach.
Even if they do, they may not have considered business issues.
Estate planning is something overlooked by most Australians, and perhaps this is understandable.
After all, who really wants to plan for what happens after their own death?
But the impact of lack of estate planning, coupled with the death of the person who is the driving force behind a family business, can be devastating, not just because of the family’s emotional loss, but for their future well-being and the survival of their business.
It is the impact of their death on the business that many owners do not recognise.
Even those that have a good succession plan in place overlook the problems that can be caused by allocating share ownership to family members in a will in an ill-considered way.
Leaving a business to a number of children without giving thought to the structure may well trigger unnecessary capital gains tax.
Take the simple example of a husband and wife who own 50% each of a company worth $1,200,000 that they set up jointly when it had no value at all.
If the business is left equally to three children, and the parents are killed simultaneously in an accident, the small business CGT concession is lost as no-one holds 50% of the business.
The capital gains tax payable in this instance would be $291,000, a tax payment that could have been avoided if the family business had been structured in a different way.
It is also a tax payment that family members may have difficulty funding if their own finances are tied up in the business.
This is one example of the importance of estate planning for all business owners to ensure that the full value is gained from their inheritance.
There are many others, both business connected and in the disposal of personal assets – issues that can be complicated in blended families where family members have married more than once and there are children from each marriage.
Who gets what assets, and the CGT treatment of each, can mean some family members inherit a large CGT obligation while others receive their inheritance tax-free.
Author Credits
Tony Fittler is managing partner with accountant and business and financial advisers HLB Mann Judd Sydney. Phone: (02) 9020 4000 or Email: tfittler@hlbnsw.com.au.