It Doesn’t End with Your Will: Estate Planning for Companies and Trusts
Tracy Collins
When you think of estate planning, the first thing that comes to mind is probably not your company or trust. Yes, your Will says who will get your assets (and shares), but what happens to your company if you lose decision-making capacity? Can your trust continue to make distributions if the trustee is deceased?
Without proper planning, a director or trustee’s death or loss of capacity can significantly disrupt business operations and create ongoing problems. You should review your asset structures, particularly corporate and trust entities, to determine whether further estate planning is necessary.
Companies
When a company director dies, the company’s constitution and any shareholder agreements typically outline the process for transferring shares and appointing new directors. The deceased director’s shares form part of their estate and are dealt with by the executor in accordance with the terms of the Will or, if there is no Will, the rules of intestacy, subject to any shareholders agreements that are in place at the date of death.
If a director loses capacity, the company’s constitution may provide guidance, or the remaining shareholders may appoint a replacement director.
But what if – as is often the case – the director is the sole director and shareholder? Then there will be no one to appoint a replacement director. In these circumstances, a Company Power of Attorney (also known as a Corporate Power of Attorney) can be a useful tool, allowing another person to act on behalf of the company while the director lacks capacity. This means that the company can continue operating where it would have otherwise come to a halt. Of course, this is something that must be prepared before misfortune strikes.
Trusts
Generally, a trust deed gives the appointor the power to remove and appoint new trustees. This is a good mechanism if a trustee is incapacitated and there is a different person acting as the appointor. However, it is defeated if the trustee and the appointor are the same person.
The statutory protections under the Trustee Act 1958 (Vic) may not be helpful in the event of a trustee losing capacity. Furthermore, an attorney under an enduring power of attorney is not usually able to exercise the powers of a trustee as a trustee is not usually able to delegate the role.
Next Steps
To protect interests operated by trusts and companies, in the event of death or loss of capacity you should at a minimum:
- Review who is the trustee of your trusts;
- If you have companies or corporate trustees, you should review the relevant Company Constitutions and any clauses relating to succession;
- Review your Trust Deeds to ensure that they have sufficient estate planning mechanisms, both on death and on incapacity;
- Review whether your trusts include appointor roles and whether the succession planning for this on death and incapacity has been set up;
- If you are a sole director/shareholder (particularly for a trading company) arrange for a corporate power of attorney.
Estate planning today is not simply about having a Will. Many of you hold assets in structures that are not governed by your Will (which only operates on death and oftentimes is subject to challenge). Accordingly, you should consider succession planning for trusts, companies and other assets not governed by your Wils.
We can assist with reviewing and advising on your documents. If you require any assistance, please contact Tracy Collins, our accredited Wills and Estates specialist, at tracy.collins@nevile.com.au.
Tracy Collins
January 26
Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.
