Mother and daughter signing a paper

Planning for successful succession

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I recently read an article written by Paul Paxton-Hall from Paxton-Hall Lawyers which included ‘lessons to be learned’ as a result of a court case decision from a mum and dad promise of “this will all be yours one day”. I want to share these lessons as a timely reminder of the importance of open and clear communication with your family members and having in place plans which are understood by all parties, for your peace of mind as well as the future livelihood of you and your family.  Some of these lessons might trigger some actions for you to take in 2019.


Be wary of saying “this will all be yours one day”

Source: Paxton-Hall Lawyers, Business Succession and Estate Planning Bulletin November 2018 (read the full bulletin here: https://paxton-hall.com.au/wp-content/uploads/2018/12/EP-Nov-2018.pdf ).

 

Background:

Increasingly, State Courts around Australia are considering whether a promise made by mum or dad about the ultimate inheritance of the family business or rural property compromises the terms of any will made by mum or dad.

At a practical level, some disinherited beneficiaries, or beneficiaries disappointed with the terms of mum’s or dad’s will, have taken action against the estate claiming that they had acted on an earlier promise made by mum or dad about the ultimate ownership of the business or property which conflicts with the terms of the will.

This is a growing area of the law as more and more cases come before the courts with such claims as the basis for action. Lawyers refer to such arguments as “equitable estoppel arguments”.

Decision:

Paxton-Hall Lawyers described the details of The Browne case where the Court decided that the dad should be held to his promises and representations and that the equity raised by the dad’s conduct can only be discharged by transferring legal title of the promised property to the son.

Lessons to be learned:

This show just how important it is for mums and dads to be very careful in the arrangements they make with their children or other family members about:

  • working arrangements in the business whilst mum and dad are alive; and
  • arrangements for ultimate transfer of ownership or succession of the business-owning structures.

It is just not good enough these days to adopt a casual approach to succession in business arrangements. The cases show clearly just how important it is to carefully document succession arrangements. It means that good professional advice should be sought and clients advised of the risk in representing to a child that “this will all be yours one day“.

Where trusts or companies are involved as business-owning structures, consider succession of control – usually through the power of appointment or guardianship provisions for a trust.

For more complicated family holding arrangements, consider the use of a family agreement or family constitution – whether binding or not binding – to set out what mum and dad are wanting to achieve. Sometimes families are reluctant to be open about their succession plans. That is when it is always best that demons be confronted whilst parents are alive rather than leaving a mess after death.

Another matter that needs to be considered carefully is understanding what family assets are – business or on-farm assets – and those which are not. Strategies dealing with the 2 different types of assets can be an appropriate way of managing the expectations of those involved with the business and those who aren’t. Families need to consider these sorts of issues:

  • can the business support more than one family;
  • the needs of parents as they age and capacity diminishes and so are unable to be involved with the business.
  • what the family as a whole wants to achieve;
  • strategies for moving mum and dad into aged care;
  • the need for independent/professional management;
  • the revenue implications of restructuring to allow easier succession arrangements.

Having read the above, what questions are you asking yourself right now?

How confident are you that your family members fully understand and have agreed to the plans in place for each of the above 6 issues?

What clarity might a well facilitated family meeting bring to your “peace of mind’?

Knowing what everyone in the family needs and how each member can help achieve this for everyone is critical to the future planning of the family business, it brings confidence, energy and trust into a business and family.

What steps are you planning to take in 2019 to ensure the continued harmony and success of your family and business?

RCS Succession and Continuity Planning consultants are available throughout 2019 to help you get started, with the most important factor being communication. Our consultants specialise in facilitating families to communicate in order to understand the wants of the family members, to draw out the options available and build strategies that consider the vision and goals of individuals and family alike.

Don’t leave your fate to the courts. What is it that you want your future to look like, and how do you want to achieve that future? Now, go get it!


Article by Jo Quinlan

RCS Succession and Continuity Planning Team Leader