There are two common threads we observe. Firstly, is that after planning and/or document drafting, no one with the requisite knowledge and experience does a walk-through scenario review – if you like, is what is intended to occur, actually going to occur, both structurally, in flow of wealth and operationally. Secondly, that prior to document(s) drafting, there is inadequate specification and understanding of purpose, taxation and asset protection consequences, the full breadth of assets under control, scenario analysis and management of estate activities, especially where business and actively operated assets are involved.

Central to intergenerational wealth transfer and estate planning in particular, is the interaction of your purpose with the technical design elements of taxation, asset protection, governance and operational management. Some common issues we identify are:

Superannuation death benefits: a technical legislative area where death benefits are not optimally addressed for the surviving spouse or ultimate beneficiaries.

Executors and Trustees: where multiple individuals perform these roles, decision making can become log-jammed and no appropriate decision and dispute resolution is in place.

Trusts and Companies: it is most common that substantial family wealth assets reside in trusts and companies. A key attribute is that such assets do not form part of a deceased estate, but that the control elements (shares, appointor, executor and trustee appointment) need to be understood in their operation and interaction, now, on an estate or incapacity event, and subsequent events impacting these roles.

Taxation: an event of death or incapacity often triggers clauses in a multitude of existing trusts, and/or unitholder/shareholder agreements. Where it is not understood or contemplated, significant adverse tax consequences can be triggered together with control and asset protection implications.

Operating assets (businesses) & high management assets: a failure to have a business continuity plan which integrates with intergenerational wealth transfer and estate planning. In the event of illness, incapacity or death of a family member with a central role in the asset’s management, governance or strategy, the asset itself can be ‘orphaned’, rudderless and the asset simply ‘jettisoned’ in the absence of business continuity plans.

Beneficiaries: principally relates to inter vivos (during lifetime) and testamentary (by Will) trusts. An emphasis to discretion in who is allocated income and capital, most often sees broad beneficiary definition under a standard discretionary trust deed. Where the law increasingly becomes more flexible with relationships such as de factos, registered and unregistered partners, estate plans and structures should contemplate such matters. Again, ensuring that flows of income and capital cannot be corrupted.

Flow: failure to undergo scenario analysis which flows outcomes in terms of capital flows and loan account reconciliation (assessed for tax, asset protection), control roles (assessed for management effectiveness, asset protection, estate/incapacity events, redundancy), likely events within family/beneficiary events (assessed for asset protection, capital management) and investment strategy (assessed for stated purpose(s), asset allocation, risk management).

We encourage our clients, be they business owners, families or significant wealth owners, to have a proper, carefully scoped intergenerational wealth transfer process– ie. to be clear on the various parts of the process, and their purpose and benefit, before embarking on the process. This by no means infers large costs, but on the contrary, to ensure the process is erudite and fully comprehended. As we have outlined here, the alternative can be significant costs down the track to repair, remediate or have to bear the unintended consequences of a poorly planned process.

Your can also reference our article ‘Intergenerational Wealth Transfer Strategy – Hurt and Pain’ from February 2021 by clicking here and read more about specific risks in the estate planning process.

Cameron Harrison have been advising business owners, families and significant wealth owners on asset allocation and intergenerational wealth management for over 50 years. We have demonstrated over a long period our ability to manage investments through both the good times and bad by keeping the client at the centre of our business.