For inter-generational family businesses, considering the protection of assets for the next generation, making a bequest in a will may seem like the best option.
A growing issue however, is the possibility of business viability being destroyed by claims made against estate assets after death of a parent.
This real life situation illustrates the dangers of not appropriately planning for succession in a family business during the life of the older generation.
Sam returned to the family farm after university and took over as 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. When his dad died suddenly the land, worth more than $15 million, was in his dad's name it formed part of the assets of his 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 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 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.
Author: Kylie Wilson
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.
Published by Kylie Wilson