HopgoodGanim recently hosted an event in collaboration with Pilot Partners and Perpetual, discussing strategies for managing wealth and legacy confidently.
Sarah Judge, Special Counsel at HopgoodGanim Lawyers was joined on the panel by Marisa Senese, Senior Financial Advisor at Perpetual and Jennifer Veitch, Partner at Pilot Partners.
Sarah discussed legal strategies to empower women to take control of their family wealth and protect their legacy. In this article, we discuss Sarah’s legal perspective on the real-world scenario discussed during the panel.
Scenario
What are some of the legal tools Helen can use to protect her legacy?
I don't like to answer this like a lawyer, but “it depends!” The specific legal tools that I would recommend Helen use to protect her legacy will ultimately depend on her personal circumstances, what she’s looking to achieve and the timeline in which she’s looking to achieve it.
At a first glance, the legal tools that jump out to me are:
What legal considerations come into play for someone in Sophie’s situation, who co-owns a business with a long-time friend?
My first question to Sophie isn’t so much a legal question. What is her business? Who are her clients? What’s her product or service? What industry is she operating in? What stage is her business in, and where is she looking to take it? I can’t give Sophie any meaningful legal advice if I can’t answer these questions.
Once I understand Sophie’s business and her drivers, my next question is: how do you legally own and operate your business? You would be surprised how many people struggle to answer this question, but it’s incredibly important from a risk management perspective, as well as in terms of minimising tax and distributing wealth. There are many different ways to own and operate a business, and not all of them are ideal.
Ideally, Sophie would have involved her lawyers, financial planners and accountants at the outset, to assist her to establish her business from the outset within the most effective structure for her – but not always the case. If Sophie’s structure isn’t optimal, we would work with her and her accountants to do what we can to improve her position, while mitigating any associated tax implications.
Assuming that Sophie’s business is operated through a private company, what can Sophie be doing now to protect her business?
If Sophie’s business is operated through a private company, then one of the most important things she can do to protect it is to put in place a shareholders’ agreement with her business partner.
A shareholders’ agreement is a legally binding agreement which is bespoke to each company and its shareholders. It’s a contract between the shareholders of a company which sets out how they agree to operate their company and its business, and how they agree to exercise their rights as shareholders.
Some of the key benefits of entering into a shareholders’ agreement are below.
- First and foremost, going through the process of putting in place a shareholders’ agreement forces Sophie to have important conversations with her business partner – if there is some misalignment between them, they’re aware of it and now have the opportunity to work through it in a low-stress environment.
- By the same token, a shareholders’ agreement can help Sophie to minimise or completely avoid disputes – not only because it’s created the opportunity to talk through how they both owners see the business operating, but also by setting out a specific dispute resolution process within the document that can be followed if a serious disagreement eventuates.
- Finally, a shareholders’ agreement will give Sophie certainty. For example, a robust shareholders’ agreement will:
- create a roadmap for Sophie’s exit from the company if that’s what she so chooses;
- set out what will happen to the company in the event of Sophie’s death or incapacity, or the death of her business partner. Sophie might be happy to be in business with her friend, but she may not be as happy to be in business with her friend’s spouse or children in the event she were to pass away! A shareholders’ agreement can specify what happens to the ownership of the company in those circumstances, and how any exit will be funded. For example, if we need some kind of insurance policy to fund a shareholders’ exit, we can discuss that and cater for it. If insurance is cost-prohibitive, then let’s discuss what a vendor finance mechanic might look like, and what payment over time options are realistic and fair for both parties – etc, etc; and
- specify how the business of the company will be funded, including how additional capital is to be raised.
Obviously, we can’t solve for all risks and all scenarios, but a well-drafted shareholders’ agreement will give Sophie certainty and protect the value of her business.
What’s the worst that could happen if Sophie doesn’t have these discussions now?
The unfortunate reality is that if you don’t take a proactive approach to protecting your business and wealth, it’s very likely to cost you in time, money and heartache.
In Sophie’s instance, taking the time and energy to put a shareholders’ agreement in place today could save her a lot of time and money down the track. A shareholders’ agreement is a bit like an insurance policy – it’s not something you ever want to have to rely on, but if things do go awry, she’ll be glad she has. Just bear in mind though, the only thing worse than no shareholders’ agreement is a shareholders’ agreement that doesn’t do what Sophie thinks it does. If Sophie is going to go down the path of putting in place a shareholders’ agreement, she needs to chose the right team to help her.
And equally, the same comments apply to Helen:
- If Helen hasn’t taken the time to sit down with her financial planner and her accountant and lawyer to put in place a comprehensive estate plan, then her family can’t honour her wishes because they don’t know what those wishes actually are. If Helen died without a Will (or ‘intestate’), the law will dictate how Helen’s assets are distributed. Helen’s family will likely need to make an application to the court to appoint an administrator, which would mean legal costs eating away at her legacy, and stress and pressure on her family in already difficult circumstances.
- If Helen loses capacity without putting in place and Enduring Power of Attorney, then her family will have to make an application to QCAT to appoint a guardian or administrator to manage her affairs.
- In that scenario, it’s not Helen who dictates who she trusts to manage her affairs, it’s the guardian or administrator appointed by QCAT. If Helen has unexpectedly lost capacity (which is often the case), that’s going to be an incredibly distressing time for her family, exacerbated by the fact they now have to go through a legal process, just to make decisions for their mum.
- And in the meantime, no one has the ability to manage Helen’s existing investments or wealth, which creates a whole raft of additional problems.
So really my message is, putting off difficult conversations may mean you actually lose your opportunity to have those conversations at all.
Future considerations
Effective protection of wealth and legacy is not achieved through a single measure, but through a considered and collaborative strategy. Whether implementing a tailored estate plan, safeguarding intergenerational assets, or securing a business through comprehensive agreements, the goal is to act early and seek informed guidance. By engaging experienced legal, financial, and accounting professionals, it will ensure your arrangements accurately reflect your wishes, mitigate potential risks, and preserve legacy. While these discussions may at times be challenging, they can be critical.