When a will is not always the way...

When a will is not always the way...


When considering the family business, making a succession plan during lifetime is crucial.

Kylie Wilson

Kylie Wilson

For inter-generational family businesses, and particularly primary production businesses, considering the protection of assets for the next generation, making a bequest in a will may seem like the best option.

And it does make sense, particularly where you received assets in a will from your own parents.

A will can also appear to act as an insurance policy against children feeling unequal and becoming estranged, or against asset loss through divorce or separation.

A growing issue however, is the possibility of business viability being destroyed by claims made against estate assets after death of a parent.

Take for example this real life situation which illustrates the dangers of not appropriately planning for succession in a family business during the life of the older generation.

Sam had come home to the family farm after university and took over the role of farm manager. Dad still managed the accounts and supply contracts.

For 25 years, Sam managed the business successfully. Dad retained all the property in his own name, citing concerns that Sam's marriage might fail (despite 15 years of marriage and three children).

Sam trusted his dad's word that he would get all the business property in his will. The business was Sam's family's sole source of income and he had no other qualifications and no desire to leave the farm.

Sadly, his dad died suddenly and without warning from a heart attack. As the primary production land, worth more than $15 million, was in his dad's name it formed part of the assets of dad's estate. The land was left to Sam in his dad's will.

Sam had three siblings. One was divorced, one had mental health issues and the third was happily married and financially comfortable.

All three siblings challenged their dad's estate. By the time the matter proceeded to trial, with five solicitors (one for each child and one for the estate), five barristers, valuers and forensic accountants, the costs exceeded $3 million.

Sam successfully received a higher portion of the estate than his siblings given his years contributing to the growth of his estate. However, the estate was ordered to pay the costs of the applicants.

Sam no longer had a viable business and had to restart his life at the age of 48.

Sam's case is not unusual, and is an important reminder that when considering the family business, making a succession plan during lifetime is crucial.

The end result when only reliant on a will can mean years of litigation and legal costs, the destruction of businesses and the estrangement of family members.

  • Kylie Wilson is a partner at Holding Redlich. The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Please contact Holding Redlich at www.holdingredlich.com or call 07 3135 0500 for further information.

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