How to Create a Comprehensive Estate Plan with Corporate Structures and Wills

When you have an interest in a corporate structure, you’ll need to consider your wishes and intentions for the estate plan of this corporate structure in the event you pass away whilst it still exists or remains in operation.

Most corporate structures are governed by specialised documents such as a company constitution, partnership agreement, trust deed, or buy-sell agreement, and therefore you may be limited in your ability to make directions in respect to these structures.

The ‘estate plan’ of a corporate structure refers to the plan put in place to address the death of an important member of the corporate structure, such as the director, shareholder, trustee, appointor or beneficiary. The plan should address what happens to their position, who will step into their place and what happens to any assets that they own or have an interest in.

Below, we’ll provide guidance on the important commercial documents that govern the estate plan of the corporate structure, and how you can deal with these structures in your Will.

Sole Trader & Partnership

When you own a business, either as a sole trader or as a partner in a partnership, the corporations law does not view you as a separate entity to your business, but rather as the same legal entity for the purposes of your liability.

For sole traders, as you are considered the one legal entity, you’re able to deal with your business in any way you see fit, which includes having free reign to make provisions in your Will regarding your business.

It is important to note that if your business is governed by a partnership, you will generally have a partnership agreement which gives directions as to the business’s estate plan. If your business does not have a partnership agreement or the existing agreement does not provide for what happens upon a partner’s death, you should consider either creating or amending your current agreement, preparing a buy-sell agreement, or making provisions in your Will to deal with the payment of any business liabilities and include directions regarding the business itself.

Company

It is important to understand the difference between being a shareholder of a company, being a director of a company, or being both a shareholder and a director.

If a person is only a director of a company, they do not have an ownership interest in the company. However, if a person holds shares in the company, they own a portion (or all) of the company.

As such, if you are only a director of a company you cannot dispose of the company in your Will, and when you pass away, the remaining directors will take over and control the operation of the company.

If you are a shareholder of a company, the shares in the company are assets of your Estate, and can be disposed of by your Will. This is subject to any rules set out in the constitution of the company, or the shareholders agreement (if there is one).

Importantly, if you are both a sole shareholder and director of a company, the Corporations Act provides that, upon your passing, your executor can step in as director to control the operation of the company, until such time that the shares are passed to the beneficiaries under the Will, and they may appoint a new director (if needed).

In terms of writing your Will, the important thing to understand is that you can dispose of the shares you own in the company within your Will, but you cannot gift the assets owned by the company, as they are not personally owned by you.

Trusts

There are many forms of trusts, however, generally, trusts can either be categorised as a discretionary trust (known more commonly as a family trust), or a unit trust.

The difference between the two types of trusts is that a unit trust has units which are assigned to the beneficiaries of the trust, such that each beneficiary has a defined percentage interest in the trust. Comparatively, the discretionary trust has a range of potential beneficiaries and the trustee is able to decide who should benefit, and how much they should receive out of the trust assets.

A trust is established by a deed and generally includes rules about who will succeed the current trustee or appointor. The appointor of the trust is the person who has the power to remove or appoint a new trustee.

If you are a unit holder of a unit trust, then your benefit under the trust can be gifted in your Will, as you have a defined interest. However, if you are a beneficiary of a discretionary trust, your interest does not form part of your estate as you are not guaranteed any benefit in the trust.

If the appointor of the trust passes away and there are no provisions in the trust deed regarding who the successor appointor is, then the executor of the deceased appointor’s Will would normally step in as the appointor of the trust. If you are the appointor of a trust and are unsure of the estate plan for your trust, you should review your trust deed to ensure you are happy with the outcomes. If you are unsure, you should obtain estate planning advice.

Planning ahead

At Safewill Legal we can provide you with specialist advice about how to deal with your corporate structures in your estate planning documents. If you are looking to update your estate planning documents or if you have interests in a corporate structure and would like to make provisions in your estate planning documents, contact us at Safewill Legal. We’re happy to help.

The information contained in this article is general in nature and does not take into account your personal situation. It is intended as a guide and may not reflect every possible outcome relevant to your circumstances. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a wills and estates lawyer.