How will the family business be affected by your estate planning?

Date: Apr 20, 2015

When it comes to planning your estate, it is important to always be aware of commercial agreements within the family and how they will work if legal and financial circumstances change. 

If your will does not mention unwritten agreements, then trouble can arise when managing the distribution of an estate. Administering trusts can also be complicated by the mix of family and business.

In a judgement released by the Civil and Administrative Tribunal of NSW this month, the issues of trusts and family business arrangements were central to a legal dispute.

In this particular case, a son - who had been working with his father as a welder - was using the premises and equipment owned by his parents free of charge. Upon his father's passing, the son took over the business and continued to run it without the mother asking for rent or a change to the arrangement.

Matters changed when his mother had to find money to support herself in a nursing home after she was diagnosed with dementia. She struggled to come up with enough money even after selling her home and from money in the family trust. NSW Trustee and Guardian then took over managing her trust for her benefit.

The NSW Trustee and Guardian decided to offer the son the chance to enter into a formal commercial lease on the premises, that he had, until that moment, been using on a rent-free basis. The son thought this decision was not fair and it had been a long-standing agreement with his parents that he didn't have to pay rent.

The tribunal found the NSW Trustee and Guardian acted in the best interests of the mother when asking the son to start paying rent or sell the commercial property to help pay for her care.

This case highlights the importance of having your affairs sorted before a person is unable to manage their financial interests themselves. Making sure you have a living will can go a long way to clarifying matters such as these.

Wills and estates can be complex at the best of times and family businesses intertwined with inheritances and unwritten agreements between loved ones can add to this complexity. For those placed in such a position, it is vital to seek the right legal advice and to consider making family business arrangements official and known to all parties.

To learn more about the process of planning your estate, or to seek advice on arranging your living wills, you should consult with a wills and estates lawyer.