Welcome to 2023. Hope you and your families had an enjoyable & refreshing Festive season break.

As we begin of the year, our third and final Estate & Succession Planning topic concentrates on future planning and charitable giving.

Sigmund Freud once wrote that the essential qualities of a healthy life include only two simple abilities - to love and to work. Values based giving allows you to do both, and enable the sustainable improvement of your family, community, or other individuals.

As you, your wealth or own business matures, you may consider succession, management and the future ownership of financial assets. In our previous blog by Ian Walker, there are a number of strategies and exit options available when selling a business or for retirement purposes. Depending on your personal view and current arrangements, there may be incentives for keeping the business in the family or passing on to like-minded colleagues.

While a large number of family business owners recognise the importance of succession, CPA Australia (2021) research highlights that 54% of Australian family businesses do not have a succession plan in place. This acknowledges there is a disconnect between intent and implementation that needs exploring, given the high rates of failure of businesses due to liquidation, bankruptcy, personal issues, or just close up shop.

In considering future planning and legacy, a goal focused on the end outcome is needed - clearly defined by asking the question: "what are we actually trying to build within our business?".

Companies & Family Trusts

Giving privately through the succession of shares in a company or via Discretionary Trust arrangements are common, but each are very different in operation and outcome. There are certain points to consider to ensure not only the small business Capital Gains Tax exemptions are accessed and legal arrangements adhered to, but the right outcomes occur.

For starters, family business' can be quirky with varying interests and motivations among family members. Therefore, a good understanding of the business structure with legal rights and obligations is required. Communication is fundamental, especially being open about values and managing expectations. A clearly communicated exit plan is also sound preparation.

Of course, other considerations around risk and succession management are necessary. For example, who controls the trustee? Is the beneficiary able to operate the business or asset, and what will they do with future distributions of income?

Given the varying degrees of intent, simply leaving company shares in equal portions to the kids may give rise to dispute in how the company operates later.

Consideration of non-business assets may be held in a different structure to help with tax savings, having the right mix of assets allocated among beneficiaries, and equalisation.

Taking action while you are still in control helps mitigate unsavoury outcomes and inefficient distribution of assets. Consider:

• start early by looking at your core principles and values
• do you have capacity and are you able to give in this way?
• determine who is motivated and competent to help deliver a succession plan
• bring the family or organisation together to discuss the shape and prospective distribution of assets or business interests
• consult your legal and financial advisers about how to draft the right documents and have a plan to capture tax advantages
• have a plan to manage any conflict, and build structures for optimisation and good governance

Charity

Succession and giving may evolve on many levels. Charitable bequeathments and socially responsible investing is the motivation for giving and investing for the economic benefit of those who have less opportunity.

There are a number of ways to bring forward charitable giving - the most notable one being through Public or Private Ancillary Funds (PAFs). There are around 3,000 of these in Australia.

These are tax-advantaged trust structures commonly used for strategic long-term giving and provide a link between those who wish to give and organisations which are eligible to receive tax-deductible donations (know as deductible gift recipients or 'DGRs'). Public and Private Ancillary Funds are tax-exempt for both income and Capital Gains earned within the structure.

Private Ancillary Funds were introduced by the Federal Government in 2001 to encourage personal and corporate philanthropy. Contributions to PAFs are also tax-deductible, but they are unable to receive contributions from the public.

They are often established as family foundations and are best understood as the "SMSFs of the philanthropic world". They offer a high level of control to those wishing to direct their gifts for specific charitable purposes, and must distribute 5 per cent annually (or $11,000 whichever is greater) of the funds' value.

An extra benefit is the opportunity these funds provide to establish a long-term legacy within a family's business. This focuses on including younger generations in investment and distribution decision-making - positive steps for the future and legacy.

In summary, good professional and financial advice will help ensure:

• succession opportunities are thought through properly
• succession is made appropriately within legal and decision-making frameworks
• Investment/assets are well managed, and 
• tax advantages are achieved

For More information

If you have any queries or concerns, please contact James or Ian on (07) 3002 2690 or by email at any time. We are here to assist you.