Estate Planning strategy around company-held assets

Whilst you might understand that not all assets at the disposal of the testator are estate assets, estate planning and company-owned assets require particular attention because of the legal implications of each environment.

Do assets owned in a family company form part of a deceased estate?

One of the financial complications for family members after a death is the treatment of the assets owned by a family-held company (and which, over a long period of time, the family has considered to be part of the family assets). It can be a difficult concept but the company’s assets do not form part of a deceased shareholder’s estate. Those assets per se, are not governed by the Will (they are not estate assets) and accordingly particular attention needs to be paid to such entities in the estate planning process.

The shares owned in the family company form part of the deceased estate.

Whilst a company is a separate legal entity, the shares owned in the company do form part of the estate of the deceased shareholder. The death of an individual shareholder – or for that matter of a director or other officer of the company – has no legal effect on the company’s continuing existence in most circumstances.

This situation can be compared with your expectation as to the consequences of the same estate holding shares in a publicly-traded company: where there is no expectation by beneficiaries that they will have any call on the assets of that company.

Note: there will be some rearranging of share ownership (and where necessary, directorships, etc), but the company itself remains substantially unaffected.

Does any other part of a family company constitute an estate asset?

As indicated above your estate will include the shares owned in a company, as will any debts owed to you by the company (including unpaid dividends previously declared). As such, they will be governed by the terms of your Will – or the intestacy laws if you die without a Will.

As mentioned in an earlier article in this series, any loans you advance to a private company should, for the reasons mentioned in relation to a ‘family’ loan, be documented as to any particular terms and conditions.

What are the consequences for a company with shares forming part of a deceased estate?

…in the short-term:

During the estate administration period, your personal legal representative (the executor of your estate) will be able to exercise any rights that attach to the shares. In private company situations it is wise to be careful in the choice of your executor to ensure that they don’t exercise their (temporary) powers in a way that could damage the interests of other parties.

…in the longer-term:

The ultimate owner of your shares in the company will gain your interest in the company assets and exercise any decision-making rights you may have had consequential to that shareholding. This includes a share in the net assets of the company in a winding up of the entity.

Estate Planning is an important exercise at the personal level and succession planning is also important at the corporate level – especially when more than one family is involved in the ownership of a company.

Where can I get help with Estate Planning?

The Continuum Financial Planners Pty Ltd Estate Planning service offers clients:

  • working with them to prepare the detailed information required for their appointed estate planning specialist lawyer; who can then
  • consider the client’s individual detail in light of their estate planning experience so as to design a plan appropriate to the client’s present and known likely circumstances; and where needed
  • provision of access to our referral connections of such professionals (to whom we are happy to refer you to match their expertise with circumstances such as your own).

The experienced advisors at Continuum Financial Planners Pty Ltd are available to guide you through the preparation of the information to refer to a legal adviser (estate planning specialist) and ensure that all relevant detail is provided to them. For an appointment to get your estate plan started, call our office (on 07-34213456), or use our website Contact Us facility.

More about Estate Planning…

This is the eighth in a series of 13 articles on the topic of Estate Planning: further articles in the series seek to bring clarity to some of the issues and implications to be dealt with in fulfilling the three key considerations of Estate Planning – getting the right amount of money, to the right beneficiaries and at the right time; and to prepare you and your family to understand the final plan when drafted. The remaining articles consider –

(This series was first posted to our website over a period from late-2011 through early-2012; it has been refreshed, updated and re-posted in February 2015.)