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Estate & Succession Planning and the Life Cycle
21 December 2012
“You can't take it with you, but with careful planning, it's possible to provide your heirs, loved ones and friends with a significant portion of your wealth.”
The Australian Experience
Australia is a nation of growing wealth and derives significant benefits from being part of the Asia-Pacific region, which is the world’s fastest growing wealth market. For example, over the period 1991–2009 net worth per household in Australia increased by approximately 6% per annum from $234,000 to $697,000.
However, there has also been an increasing concentration of wealth in Australia among high net worth and ultra high net worth individuals, particularly since the introduction of compulsory superannuation in 1992. The superannuation industry in Australia has experienced sustained and strong growth exceeding 10% per annum over the period 1992–2009 with superannuation assets increasing from $148 billion to $1.1 trillion. This growth in superannuation assets is expected to continue to over $4.1 trillion by 2021 and $7 trillion by 2028.
The growth in wealth experienced by the “baby boomer” generation, who are now either retired or close to retirement age, will result in the greatest wealth shift ever experienced in Australia over the next generation. Protecting that wealth and developing, implementing and maintaining estate and succession planning strategies to maximise the wealth transferred to the next generation should be at the forefront of the minds of baby boomers and their accountants, lawyers and advisors. This will require careful planning in determining how to structure the acquisition of assets, the types of assets to be acquired, when and how to dispose of assets, who will take over any businesses and to whom assets will be passed upon death.
This article is the first in a series for the Ruby Connection Newsletter that will examine estate and succession planning at different stages in the life cycle and illustrate their importance in facilitating asset protection and intergenerational wealth transfer.
Common law (i.e. case law or judge made law) principles apply throughout Australia, however the relevant legislation for estate and succession planning purposes is predominantly state based. Consequently, the domicile of a person (i.e. where they permanently reside) and the location of their assets will be critical in determining the relevant legislation. This article series will consider the legislation that applies in New South Wales, unless otherwise stated.
Estate planning is the process of creating and documenting strategies to transfer wealth from one generation to the next. The testatrix (i.e. a female Will maker) or testator (i.e. a male Will maker) may seek professional advice to assist them in making decisions and drafting (or amending) the relevant documents. Estate planning involves identifying the intentions of the testatrix, considering the current circumstances and future needs of any intended beneficiaries, and establishing and maintaining appropriate ownership structures for the assets of the testatrix. Estate planning is an ongoing process and must be revisited from time to time, at different stages in the life cycle.
An effective estate plan balances the needs of the testatrix during her lifetime and those of her beneficiaries after death. It must allow the testatrix to benefit from her assets, protect those assets and minimise tax during her lifetime. After death it must facilitate the transfer of wealth to the beneficiaries of the estate in a tax effective manner, continue to protect the assets after they have been transferred and minimise delay and expenses in administering the estate. This balancing exercise has become particularly important in recent times, given the growth in wealth in Australia and the wealth shift that will take place over the next 25 years.
Succession planning is the process of creating and documenting strategies to identify potential successors of a business to take over from the current owners/managers when they sell their interest, retire or otherwise cease to be involved in the business (e.g. due to illness, accident or incapacity), develop those people so they have the skills and experience to assume leadership roles when required and determine the terms of any changes in ownership interests (having regard to the tax implications of those terms).
An effective succession plan should improve the long term profitability of a business by causing minimal disruption to its operations and enabling it to continue to function effectively during any periods of change.
Succession planning is an ongoing process. A succession plan must be reviewed from time to time at different stages in the life cycle to ensure that it is up to date and accommodates changes in circumstances that may necessitate early implementation of the plan.
The critical documents
There are a number of documents that may need to be prepared as part of estate and succession plans. These include:
• Superannuation Death Benefit Nominations
• Power of Attorney
• Appointment of Enduring Guardian
• Trust Deed
• Memorandum or Letter of Wishes
• Memorandum or Letter regarding Guardianship of Minor Children
• Binding Financial Agreement
• Company Constitution
• Shareholders, Unitholders and Partnership Agreements.
The circumstances of the person concerned, in particular their stage in the life cycle, the type and ownership structure of their assets, and to whom those assets will ultimately be transferred, will determine which documents need to be prepared and when they need to be prepared or updated. These documents will be examined in the next article in this series.
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 Scott Reeves, Estate Planning (2 October 2006) Forbes <http://www.forbes.com/2006/01/12/irs-taxes-estateplanning-cx_sr_0210taxes27.html>.
 Australian Government, Australian Trade Commission, Private Banking in Australia (June 2010) p 10 <www.austrade.gov.au/.../Private-Banking-in-Australia-Publication.pdf.aspx>.
 Interview with Matthew Rogozinski (31 May 2011), BCG, Shaping a New Tomorrow: How to Capitalize on the Momentum of Change (31 May 2011) Australian Banking Finance <https://www.australianbankingfinance.com/banking/australia-lags-world-growth-in-personal-wealth--bcg->.
 Leslie Nielson and Barbara Harris, Economics Section, Parliamentary Library Background Note, Chronology of superannuation and retirement income in Australia (ISC Annual Report 1991–1992, 1 June 2010) <http://www.aph.gov.au/library/pubs/bn/eco/Chron_Superannuation.htm>.
 Australian Government, Australian Trade Commission, Private Banking in Australia (June 2010) p 12 <www.austrade.gov.au/.../Private-Banking-in-Australia-Publication.pdf.aspx>.
 Trowbridge Deloitte Super model – 2007 results <www.deloitte.com/assets/Dcom.../Pre-Post%20Retirement%20Assets.pdf>; Deloitte Dynamics of the Australian Superannuation System: The next 20 years: 2009 – 2028 (March 2009) http://www.deloitte.com/assets/Dcom-Australia/Local%20Assets/Documents/news-research/Deloitte_Australian_Superannuation.pdf.
 Australian Government, Succession Planning <http://www.business.gov.au/Howtoguides/Exitingabusiness/Pages/Successionplanning.aspx>.