A crisis management plan is a simple concept to explain. It is a plan to guide your loved ones in the event of a crisis.
So yes we are talking about your death, a tragic accident or just a gradual loss of control over your financial affairs as you get older. Effective estate planning is an important part of a crisis management plan. So is the possible option of an insurance policy. However, the simple preparation of your will, enduring power of attorney, death benefit nominations or insurance does not mean that your loved ones will be able to administer your estate, or care for you easily.
Your life is more than just your will. Over time your affairs, tax structures, software programs, relationships and investments have grown. You have investments in Perth, Australia and possibly overseas. You have a network of business accountants, lawyers and investment professionals that you draw upon to care and help you along your journey.
To properly help your next generation or your spouse you need clarity on all of your life so somebody else can understand. A “to do list” if you cannot run the show.
If you do not do this your kids, or spouse, will. Sadly, we have seen the cost of preparing these documents, after death, is exponentially more than preparing them in advance.
So how do you get started and what is in a crisis management plan? Let’s just have a quick and cursory look at some documents in a crisis management plan:
An organisation chart
A picture tells a thousand words. An organisation chart is a fantastic way of getting somebody up to speed quickly on your tax structures and how they click together.
At Westcourt FBA we do organisation charts for every business client so a lot of our clients have this one down pat. Why do we do it? Well, apart from being nice people, the org chart helps get newer family members up to speed on the family business structure.
Importantly an organisation chart is high level. Don’t put too much information into it or you will get a spaghetti monster that is nonsensical.
A family genogram
A history of the family and how everybody is connected is valuable. For small families this information is basic – but as time grows and the first generation enters vintage years (say 90+) the legacy of the parents, and the relationships among the first generation and cousins, becomes blurred. As different family members pass away the history of the family passes away as well.
A genogram helps the next generation understand how different people are connected. If your bequest is to somebody other than the children a genogram can go a long way in helping the kids understand the relationships and the importance of a bequest to somebody else other than them,
This is particularly important in a family business. Sometimes the family in the business can be cousins, nephews or siblings-in-law. How we connect is important to understand the motivators.
A history of you
Every family has a story. How you arrived to Australia, your first job, when you met your partner, and how the wealth was accumulated. More importantly why the wealth was accumulated and what the hopes and dreams of the parents are.
This history of you is likely to be the last opportunity to shape and influence your next generation. Your children will love you for it, they will cherish your story and it will go a long way in helping kids cope with your death.
Getting a clarity of purpose behind the family is critical. It is fun.
A statement of net assets
Your net wealth should not be a hidden subject. If it is large the next generation is entitled to know it is large.
However at any stage giving the next custodians of your wealth an understanding of your wealth gives a great starting point. It allows the next generation to understand the pot and give ways for the pot to be managed.
The statement of net assets for you must also show any built in tax liabilities, and other hooks, associated with each asset. There is no point in the kids agreeing on the split of 3 houses to 3 children only to then find that one investment property has a $600k tax liability – and the negotiation of the asset split has to be done over again.
What if the third house has a covenant that you cannot build a two story house on it? The kids might think that it has great development potential but the reality is that it does not. If the statement of net assets is clearly supported the speed and ease with which another person comes in to help run your affairs is so much quicker.
A history of tax entities
Over time you will create a multitude of tax entities. For most wealthy families the legal structures (sadly) seem to be ever increasing.
If you document the why each entity was created you will make it so much easier for the next generation to pick up the baton.
Permanent tax records
Do you have the world’s best filing system? Is it a combination of the garage, your desktop and a mis-match of pdf files at well intentioned advisors?
Your filing system is great for you. It fits into how your head works so – for you – it is the world’s best filing system. Somebody else needs to understand your system. Telling them on a Sunday night is not the answer.
Documents like trust deeds, purchase contracts for properties, share purchase contract notes and the PDS of a managed fund needs to be retained in one (cloud based) platform so that the kids can start to look at these important governing documents.
Don’t assume that your accountant has these on file. Many documents will go back over 40 years and if the relationship with your current advisor is say, 10 years, it is possible that they do not have these on file. Most professionals retain stuff for 7 years.
Your advisor contact list
Can your family business accountant recognise your kids on sight on a Saturday afternoon? If the relationship between your advisor and your children is poor (or non-existent) you could be faced with difficulty. When people are coped with extreme grief, coupled with confusion, the result is often anger.
Your advisors are a key part in enhancing your family wealth. Your children should know how to contact them and in what capacity.
If your kids engage their own advisors, then the truth is that you will have outsiders looking at your estate and learning how you ran it. This is an incredibly expensive exercise. Your kids could simply approach the long term advisors you have on board now and save your inheritance for your beneficiaries.
A wish list
Some things cannot be put in will and you would not really do it if you could. If you have a desire that the kids all go to Yallingup over Easter then this is the time to say so.
Your wish list is just that; but it is a nice touch to give direction to your family.
Your loan positions across the banks can be confusing. Your net equity position and the presence of cross-collateralised loans is complex. You do not want to be adding stress to your family in a time of grief.
So a loan matrix that outlines the different loan types, how they are funded, the loan documents and the contact points are a critical point.
This is a good document to have in any event to understand how your banking relationship works anyway.
Sounds obvious? Well it is – but a good idea is to have a brief summary of the wills written in layman terms so it can be understood.
You should attach the enduring power of attorney and the testamentary trust. The basics are basic – and important.
So how are we going? The old saying “shirtsleeves to shirtsleeves in three generations” is still very much true. And an estate plan is a good part of ensuring that your assets are dealt with properly. A crisis management plan is critical in helping your loved ones continue using the assets in the right way and with minimising arguments and stress.
At Westcourt FBA we have a multitude of ways to help families in business get a crisis management plan in place – and it is much more detailed than what we have raised above. By leveraging technology we are able to give tailored options for our clients to create a Crisis Management Plan from $220 including GST. We also have more complex families where we will go to a holiday location and present information about the ongoing financial affairs of the family.
Importantly a crisis management plan has to be a best fit for you. Not best practice. At Westcourt we understand the importance and we can progress on these documents with care; but the important point is that you start.
Call us today. It will save your estate a fortune and help your kids, or your spouse, no end of grief.