As advisors to families in business the protection of the family’s wealth is always on our mind. And our combined experience as a specialist firm has shown us almost all of the ways a families wealth can be eroded quickly.
The following are 5 ways your family wealth can be attacked.
1. Litigation
Perth now has 5 law schools churning out graduates. And while most lawyers are doing a fantastic job helping business minded families – an increasing portion are targeting wealthy families as a way to generate fees.
The increasing threat of legal action, and the desire to stay out of the legal system is very strong. Essentially many commercial business families know it is quicker and cheaper to settle an unfounded claim than contest it.
The primary way to stop legal action against family members is to ensure that they own very little assets. And for the assets held, the documentation and preparation of related party loans with security can make a massive step forward to stopping claims against a wealthy family as the person attacked suddenly is no longer so wealthy.
A large part of our advisory process is focused on protecting the family behind the business to keep the wealth across generations.
2. Bankruptcy
The operation of any business can cause unexpected bankruptcy. With the business risk today of criminal manslaughter for workplace injury, a raft of costs that directors are personally liable for (like superannuation) can bring bankruptcy to a careful and prudent business operator.
The separation of key family members away from trading businesses and carefully documented and positioned tax structures can stop the threat of bankruptcy of one family member creating a domino effect that can take the entire family wealth.
3. Death
Sadly the estate planning process goes well beyond a will. While lawyers are great at preparing a will, enduring power of attorney and testamentary trusts – family members of an deceased person, even when estranged can seek to access to assets held in trusts, companies, partnerships and SMSF structures.
The preparation of a “business will” and the ongoing management of your tax structures must consider the impact of death in a family and how the assets will pass on.
4. Incapacity
While death is significant – business assets can seize up on the incapacity of a person. Poor tax structuring can create unforeseen circumstances such as a single director single shareholder company, sole member SMSF’s or trading company with unclear directions on what to do in an emergency.
At Westcourt we consider the use of successor shares, second and third trust appointors and the knowledge information flow so that future operators of the families wealth will be able to pick up the reigns of the wealth and run the affairs.
A simple example can be the payment of wages. If the owner is the only person with knowledge of the passwords (or on their phone) incapacity could create an issue where wages are not paid – and a great business can turn around very quickly in that instance.
5. Family law
A wealthy family will look to keep the business and family wealth running across generations. And some assets – like property or farms – simply cannot be split up into smaller components due to divorce.
The control of assets, mortgage and clear wealth charts for a complex family can be deeply beneficial if a child is undergoing a divorce. If the advice has been poor such that asset ownership across generations is murky the risk that children’s (or grandchildren’s) spouses can mistakenly approach other family members assets is a significant concern.
The management of control, unpaid trust distributions and properly documenting loans upfront with ongoing management care is an important part of protecting the broader families wealth.
Stopping it upfront
At Westcourt we understand business families and family business. The protection of assets by smart tax structures and implementing the structures properly looks to asset protection, succession planning and tax management.
If you are concerned about the structuring of your affairs you should call us. We have seen just about every possible way bad things happen to people and we have a raft of smart strategies to stop it from happening.
