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The Role of the Will in a Succession Plan

6 minutes read time

This is one of an ongoing series of 10 articles on this topic. This article is the nineth in the series, and follows on from Family Business Succession and Asset Protection, Succession to the Third Generation, Transitioning the Current Generation out of the Business, Employment and Equity in Succession to the Next Generation, Sale of the Business as an Option in the Succession plan, Succession Planning: How to Bring Non-Family Members into the Business, How to Create a Succession Plan and Understanding Business Structures for Succession & Asset Protection.

The first step in making a Will, whether or not a business is involved, is to take instructions, including details of the client, his or her family, the people the client ought to have regard to, the assets (those which can pass under the Will and those which cannot) and what the client wishes to achieve.  The ownership of assets should be checked, firstly to ensure that the client is the owner and that the asset is not owned jointly as joint tenant, in which case it cannot pass under the terms of a Will, but will pass by survivorship on death to the surviving joint owner.

If there are likely to be any claims made against a deceased’s estate on death (known as TFM claims), super death benefit can be nominated to certain dependants directly by Binding Death Benefit Nomination, rather than to the Legal Personal Representative which would direct it into the estate, making it susceptible to a claim.  Life insurance can also be nominated outside of the estate.  Where there is no prospect of a TFM claim, but an individual wishes to offer the next generation increased asset protection and tax mitigation opportunities, it may be an option to ensure that super death benefits and life insurance do fall into the estate and pass on death into discretionary testamentary trusts.

If assets are bequeathed on death to the next generation absolutely and, at the date they inherit, they are going through a relationship breakdown or have an interest in a business which is in trouble, their inheritance may be susceptible to being claimed by a trustee in bankruptcy or taken into account on divorce.  If the inheritance passes into a testamentary trust, with independent Appointors controlling the trust, through the power to remove and replace the Trustee, and an independent Trustee owning the trust assets and making discretionary decisions as to who, from a class of beneficiaries, can benefit from the trust income and capital at any time, then it is afforded more protection.

When businesses are involved, it is important to obtain copies of all trust deeds and amending deeds, to obtain the details of the Trustee, the Appointor, the potential beneficiaries and how control can pass and to check for any traps.  The constitution of any company and any shareholder agreement should be checked to ensure there are no restrictions on transfer of shares.  Financial statements for each entity should also be obtained to check the assets and liabilities, including any sums due to the individual personally.  Problems can occur when control of a business entity is intended to pass by Will to one child, and the residue of the estate is to pass to another, but a debt is owed by the business entity to the deceased individual which is not forgiven and must be repaid by the entity to the estate of the deceased individual on death.

The Will should deal with passing control of trusts, companies and unit trusts.  The trust deed of a trust is the “rule book” and sets out how control of the trust can pass.  Usually a trust deed will state that the Appointor of the trust can nominate a new Appointor by Will and therefore the Will should contain such a clause.  The Will should deal with company shares (including shares in a corporate trustee) and trust units, if there are no restrictions in the constitution, shareholder agreement or unitholder agreement.

The diagram below shows how a business structure can pass on death to the next generation. Using the example of Blue Sky Pty Ltd. 

Succession planning and the Will - structure of business diagram

    1. Usually the current generation owners of the business (e.g. Mum and Dad) will make Wills leaving everything to each other on the first death, including the shares in Blue Sky Pty Ltd.
    2. The trust deed of the Blue Sky Wines Trust should state whether both current owners are Appointors and whether the surviving Appointor has the power to nominate a successor by Will.  If so, the Wills of both current generation owners should, for certainty and clarity, make provision for the survivor to be Appointor and nominate a successor to take office on the second death.
    3. If the intention is for the business to pass equally to three children, for example, it may be prudent for all three children to be nominated Appointor jointly, so that they must act together.  It may, depending on the provisions of the trust deed, be possible to vary the Appointor provisions in the trust deed to provide for a Child A, Child B and Child C Appointor, to act jointly after the death of both current generation Appointors, with further provision that the Appointor for each child will have the power to nominate a successor by Will, so that control of the trust is split between the three children and their families and all three must act unanimously.
    4. If the business is to pass equally to three children on the second death, the Wills of both current generation owners should make provision on the second death for an equal number of shares in Blue Sky Pty Ltd to pass to each child or his or her family trust.  As one child could be out-voted, the constitution of Blue Sky Pty Ltd should provide that each shareholder may appoint one director and that the three directors must act unanimously when exercising the discretion of the corporate trustee to make distributions of income or capital.
    5. At times, the business entity may own assets which the current generation would like to deal with before passing control of the entity itself.  The intention may be for one child to receive certain assets from a trust, or to be allowed to reside in a trust property for a certain period, before control of the trust is passed to another.  An independent and unbiased non-family Trustee can be useful in such circumstances, where they can be trusted to carry out the wishes of the current generation owners after death, including taking tax considerations into account.


This was originally published in Australian & New Zealand Grapegrower & Winemaker.

This article is based on the law as it stands on 16 April 2020.  It is not intended to be a complete and definitive statement of the law and the information and views contained in it should not be regarded as a substitute for specific advice in individual situations. Further professional advice should be sought before applying the content of this article to particular circumstances.