Owning a business, company or trust may add additional layers of complexity to estate planning.

Ensuring that your business interests are handled smoothly should you die or lose capacity will be crucial for the protection of your assets and the succession of your interests.

Below is the potential impact of death or loss of capacity on several types of business structures:

1. Sole traders

As a sole trader, you and your business are legally the same entity. Therefore, if you die or lose capacity, your business operations can be severely affected if proper plans are not in place.

• Death: Your business assets and liabilities become part of your estate and are managed by your executor who can choose to sell the business, continue operations temporarily, or wind it down, depending on what is most beneficial for your estate and beneficiaries under your Will.

• Loss of capacity: If you lose capacity and have an Enduring Power of Attorney (EPA), your attorney can manage your business’s financial affairs. Without an EPA, a financial administrator may need to be appointed by the Queensland Civil and Administrative Tribunal (QCAT).

2. Partnerships

In partnerships, the business succession depends on the partnership agreement.

• Death: The partnership agreement usually outlines what happens if a partner dies, such as having remaining partners buy out the deceased partner’s share, dissolving the partnership, or admitting new partners.

• Loss of capacity: The partnership agreement should specify procedures for a partner losing capacity. An EPA may also come in useful where you can appoint someone to manage your financial matters.

3. Companies

A company is a separate legal entity, and its operations can continue even if a director dies or loses capacity. However, proper planning is essential to ensure smooth transition to your successors.

• Death: The company’s constitution and shareholder agreements typically outline procedures for transferring shares and appointing new directors. The deceased’s shares become part of their estate, and the executor of your Will, will transfer the shares in accordance with the term of the Will or rules of intestacy (if no Will is left).

• Loss of capacity: The company’s constitution may provide guidance, or the remaining shareholders might need to appoint a new director. However, in the case of a sole director/shareholder, this may not be possible. Therefore, a Company Power of Attorney (also known as a Corporate Power of Attorney) will become useful.

4. Trusts

Trusts are commonly used for asset protection and estate planning. The management of a trust depends on the type of trust and the trust deed/s.

• Death: The trust deed typically outlines what happens when a trustee dies. A new trustee is appointed according to the terms of the trust deed or by the beneficiaries. For discretionary trusts, the person with a controlling position (typically the Appointor, Principal or Guardian) play a critical role, as they hold the power to appoint and remove a trustee.

• Loss of capacity: If an individual trustee loses capacity, an EPA can be useful whereby your appointed attorney can act as trustee. If there is no EPA, then a new trustee may need to be appointed – in accordance with the trust deed or by an application to the Court.

Steps to secure your business interests in the event of death or loss of capacity

1. Create a Will and EPA

Ensure your Will is up to date and includes clear instructions regarding your business interests, passing of shares and controlling positions in any trusts.  

An EPA allows you to appoint someone to manage your financial and personal (including health) affairs if you lose capacity. It is important to choose someone you trust and who understands your business operations.

By creating a Will, EPA and reviewing key documents, you can safeguard your interests and provide for your loved ones. However, it is especially important to get these in order before you lose capacity.

2. Review partnership agreements and company constitutions

Ensure these documents include provisions for the death or incapacity of a partner or director. Clear guidelines can prevent disputes and ensure smooth transitions.

3. Review and update trust deeds

Review and update your trust deeds to include clauses for appointing new trustees or managing the trust in the event of your death or incapacity. Ensure the Appointor’s role is clearly defined and that your successor can be nominated under your Will (if an alternate is not outlined in the deed).

4. Meet with your estate planning lawyer

It is important to work with an estate planning lawyer, financial advisor and accountant to ensure your business and personal estate plans are in order and to help implement effective strategies. Proper estate planning is essential for ensuring the continuity and stability of your business, company or trust and to ensure everything marries in with one another.  

Please feel free to contact us to assist with navigating the complexities of estate planning and develop a plan that reflects your wishes and secures your beneficiaries’ inheritance.