As innovators and experimenters in their chosen industry and business more broadly, Phillip and Jan developed and grew wealth outside the business, building a portfolio of financial assets and commercial property, which was then in time combined with the sale of the family business in the mid 1990’s. Through entrepreneurialism and hard work, our clients had amassed significant wealth. They also recognised that private business, whilst rewarding, can be a lonely endeavour. They, therefore, saw early on both the need and benefit of seeking ongoing professional advice. To be able to test assumptions, bounce ideas, get technical advice, and through planning, assist provide clarity, priority and clear purpose. 

We assisted in the business sale process, particularly with respect to the transaction structuring and the tax efficient extraction of capital from the holding company structure. As the family’s wealth manager and advisor, a core element was guiding them through our Intergenerational Wealth Transfer planning process.  As with all effective planning, it was an iterative process conducted over the next 20 years.  In the late 1990’s, Jan passed away suddenly and Phillip, some ten years later. They are survived by two adult children with their own respective families. 

The Intergenerational Wealth Transfer Plan that was developed with Phillip and Jan had a clear purpose, framework and set of policies clearly laid. The key elements of the plan were: 

This principally occurred through: 

1. A superannuation contribution strategy over some 12 years to enhance their adult children’s own independent, tax efficient retirement pools (as they were 10 to 15 years away from reaching 60 years of age)

2. Assisting with grandchildren’s private school fees paid through tax efficient withdrawals from superannuation    

3. Providing secured loans to each of the adult children to assist in the purchase of their respective family homes

4. Discretionary distributions to support the adult children in the more expensive ‘chapters’ of their lives. They advocated and required the adult children to participate gainfully and/or contribute with purpose in their lives.  The principle was one of assistance, not reliance. 

In this instance, the family’s wealth was invested and operated through multiple entities and structures covering superannuation, multiple family trusts for general purpose investment and to hold their various commercial properties and business interests. Added to this, certain lifestyle property was individually owned through bare trusts.

On their respective passing, various testamentary trusts were established to address specific needs of the adult children and grandchildren’s education and advancement. These were largely funded on Phillip’s passing from tax free superannuation benefits occasioned by a specific instrument exercised by his attorney prior to his passing together with loan accounts from various entities. 

It was important that these new testamentary trusts be controlled and conducted in a very similar manner to the existing trusts. Whilst being mindful of trust resettlement factors and risks, control of all trusts and corporate entities were made broadly aligned.  This covered appointors, trustees, directors, and shareholdings together with the control terms. 

Our clients (wisely) adopted a lifelong attitude and philosophy to seek professional advice, especially when the matter was outside their expertise; during and post their business ownership.  In considering their Intergenerational Wealth Transfer Planning, they likewise adopted a governance skill mix, covering their adult children, and combined it with professionals in finance, business and legal, that could “steer” the family wealth structure.  An important element to this approach is the structure was designed to be intergenerational and organically develop for future generations; seeking to imbue future generations with the strategic skills and governance to succeed (also discussed further on at 4 below).

Practically this manifested itself with: 

• Appointor role provisions 

• Use of corporate trustee for both inter vivos and testamentary trusts  

• Various stipulated powers and responsibilities to each of the appointors, trustee and guardian, some mutual, other exclusive 

• Documented charter and guiding principles that current and new roles must be assessed to operate by

Our business owners saw early on, the value of business structure and governance in their ongoing wealth management. The activity of wealth accumulation (financial assets + commercial property) was its own business activity, as such it needed to operate with its own structure and ‘organs’; requiring strategy, relevant resources, reporting and accountability. Accordingly, they utilised our Portfolio Group Governance Framework which saw the family wealth ‘business’ operate to reviewable strategic plans, investment and risk policy, quarterly portfolio board meetings, and importantly, defined reporting and performance measurement assessed to strategic benchmarks and deliverables. 

This framework was designed with continuity so as to operate during and beyond their lifetimes, then to the next generation and beyond. This was achieved through the ongoing planning and review process and empowered through the constituent documents, statement of wishes, but most crucially through the development of policies and conduct with the governance group through Phillip and Jan’s lifetime. The objective being strategic seamless transition. 

To summarise the key components to this successful plan, its implementation and ongoing operation, and now, successful transition to the next generation:

• Spend the time to plan and establish the strategy and practical operating framework – this is simply good business practise. Too often, clients ‘jump’ to the legal drafting stage, and the output and result can be a one dimensional estate ‘boiler plate’ document which practically does not work or creates a ‘straight-jacket’ for future generations

• A Plan represent a situation at a point in time and various assumptions as to the future.  Our clients took the opportunity to be re-iterative and come back every five years to review where they were at and whether their assumptions were still valid or needed to be adjusted.  This is a guiding principle within their governance policies for next generations to follow.

• Test whether your Intergenerational Wealth Plan works, especially on defined critical events.  Over many years, we have seen a significant amount of structures, wills and accompanying provisions which do not work with reference to what the client sought.  It is sound practise to undergo scenario analysis which flows outcomes in terms of capital flows and loan account reconciliation, control roles, likely events within family/beneficiary events investment strategy. 

• Good planning addresses strategy and structure (with roles).  It also needs to address ongoing ‘conduct’ and what is appropriate and desired.  This requires clear expectations of roles supported by clearly articulated principles, values and policies (where required).  Our clients understood the benefit of these ‘good business’ principles and put them in place during their lifetime.  They viewed these principles as part of their learnings over their lifetime for the benefit of the next generation – no point the next generation repeating the mistakes they had already made in their lifetimes.

You can also reference our article When Estate Plans do not work and read more about specific risks in the estate planning process.