Estate planning: Name a transaction advisor in your will
Article by: Chris Sheedy OF The Hard Word
If you own your practice, proactive estate planning can enhance your legacy, support your loved ones and protect your staff.
Estate planning around your accounting practice shouldn’t be daunting or difficult, but it must be done right. Clear instructions on the succession plans or sale of a company can save that business. However, a lack of specific direction can result in messy legal and financial complexity, and tangled relationships.
“Several times throughout my career, I’ve been made aware of a business owner who has died, and I have been asked to help,” says accounting business transaction advisor Kev Ryan.
“Sometimes I’ve gone in to help, but within a few days I’ve received calls from various family members and others, all with different wishes, and things can get messy. The problem has been that they have not specified their wishes, and they have also not mentioned who they would like to manage the transaction.”
How does an accounting firm owner avoid such issues in their business? Virgil Power, from Virgil Power Lawyers, says it’s vital to formalise your intentions with the assistance of a legal professional.
“It’s almost impossible for a lay person to fully understand the numerous legal implications, and these can lead to expensive and time-consuming issues for family members and others if things aren’t handled correctly,” Virgil says.
In life and death, companies are complex
The distribution of personal assets when a person dies is relatively simple, as long as a will is in place. However, companies have their own complexities when it comes to estate planning, and the rules can vary state to state.
When assets are held across more than one state or country, Virgil says the will must be tailored to the specific requirements of each location, to avoid costly probate issues. A consideration of the need for additional wills can be crucial.
Company issues require extra layers of decision making from the executor of a will. That’s why it pays to give the matter special attention, including:
the naming of an executor;
instructions around how the business should be managed without the owner in place;
whether the business should be sold, transferred to a particular person or entity, or merged with another; and
who should manage the transaction process.
“Once you’re gone, clients may start leaving, and vultures can circle around your practice, looking for a quick buyout at a reduced price,” Kev says.
“By naming in your will a qualified transaction advisor who can help your family handle the business affairs professionally and promptly, it can make a significant difference to the outcome.”
There are many tripping points in a will
“When a loved one passes away, emotions run high,” Virgil says. “The last thing grieving relatives should have to worry about is whether they’re handling business matters correctly.”
On top of the business challenges, there are many basics of will design that people outside the legal profession don’t understand, he says. For example, a will must be witnessed by two people over the age of 18.
“But if one of your beneficiaries witnesses the will, then the disposition to that beneficiary may fail,” he says. “Also, a marriage may automatically revoke a will, unless the will was made in contemplation of the marriage taking place. There’s a lot you need to be careful of.”
Some of the questions Virgil would ask, before writing a will that included business succession, include:
is the owner getting married;
is the owner divorced;
are there family members they don’t want to leave things to, but who can make an application to the court for not being adequately provided for;
what specific instructions are there for superannuation, which is an asset trust and therefore doesn’t form a part of the estate;
do they hold property/ies as joint tenants or tenants in common;
what are their exact wishes for their business;
and much more.
“If you get it wrong, the consequence for your loved ones can be a huge financial toll,” Virgil says. “To have the estate litigated, deal with unwanted probate issues or make an informal will application to the courts to try to rectify an incorrectly executed will, is just very costly.”
Considering a will written by a lawyer costs around $500 to $1000, it’s money well spent.
You can name a business transaction adviser
Virgil says he has seen, in the past, wills that specify which real estate agent is to sell the deceased person’s house, which lawyer should manage the legal affairs within the will, and which accountant should manage distribution of assets amongst beneficiaries.
In the same way, it can be a good idea to specify who should be brought in to look after the sale, merger or other succession plans for the business.
“An express direction in the will to consult with certain professionals provides a valuable support tool in the executor’s decision making process,” Virgil says. “Having someone familiar with the business and the business owner, and who has a proven track record in the accounting business transaction space, would be very useful.”
Kev agrees, saying his role, during the sale, merger or acquisition of any business, is to act on behalf of the owner’s wishes. If the owner has passed away, he’s able to quickly assess the situation, find suitable buyers and protect the business’s value.
“You can’t expect grieving relatives to produce the best outcome,” Kev says. “By having a trusted adviser step in, you remove that burden from your family, giving them space to mourn without the added stress of business matters.”
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