January 30, 2023

Inheritance: Protecting and transferring family money

There are many ways for family wealth to be built and then lost over generations, and if you’re the steward of your family money and responsible for legally protecting the family inheritance, it may be weighing heavy on your shoulders.

In this article, we cover what makes up family wealth as well as the frank discussions about next generation beneficiaries and their role in the continued safe succession of family money.

There is a lot to be considered emotionally and legally when it comes to family money and its transfer to the next generation.

If you’re of the view that once you’re dead it really doesn’t matter what happens next, you should stop reading now, but if you’re of the ilk who considers a lasting legacy capable of enhancing the lives of your offspring for generations to come, you’ll find this article not just of interest, but importance.

For high earning mining and resources executives and professionals, you may be starting your own future generations’ wealth, and it’s possible you’ll be the recipient of a substantial inheritance from your own forebears, if not already, in the not too distant future.

Either way, if the responsibility of family money falls to you, there are a myriad of matters you’ll need to consider.  It’s time consuming but necessary, so can I say right off the bat, get sound advice early.

The basics
A well-considered Will is a fundamental as its purpose is to provide clear instruction of the distribution of your wealth to beneficiaries. Around 40% of Australians don’t have a Will [1], and if you’re one of them, can I suggest you make a Will your priority.

If you do have a Will, but you haven’t opened it in a while, it probably needs updating especially if your circumstances have changed, such as getting married, divorced and having children or becoming self-employed or establishing companies or trusts.

The complexities
When there’s a lot of money and assets involved, there is usually a lot of complexity and risk as well.
As I’ve written in earlier articles, a Will is essential, but what you really need is a comprehensive estate plan with appropriate structures that will protect wealth from unwelcome claims while facilitating ease of management. These include testamentary and super proceeds trusts and providing a practical and efficient strategy for dealing with what can be an extraordinary number of variables and will help provide answers for important questions that include:

What constitutes your family wealth or estate: Is it land, companies, shares, business, what else?

How is it held: By a company, jointly, in trust?

Is it transferrable: If so, what has to be done to make it happen, and have the legal, tax and financial pros and cons been identified.

Is the wealth jointly owned: What happens when one party dies, does the other party automatically get it and are they capable of managing it?

How are the assets to be controlled during and from one generation to the next?

How is the capital or income distribution to be managed across the generations?

Importantly, with so many things to think about, is there risk of an internal (in addition to external) attack on family assets and if so, what are the best structures or mechanisms to keep your wealth safe now and for perpetuity?

The emotional stuff
In my experience, family group leaders who are responsible for the transfer of family wealth also carry a heavy burden of ‘fairness’.

This is because families are complex. Modern families are full of different characters, some with strong personalities and often varying levels of competence. The latter can include addiction, disability, while bankruptcy, divorce and living overseas where different laws exist that can affect wealth transfer and giving rise to difficult money and circumstance discussions.

Communicating clearly with your family and beneficiaries is key, no one wants to be blindsided, especially if their expectations differ from your decisions and removing the emotion from discussions and decision making is imperative. Often the solution is meeting with your lawyer before addressing the family, or in tandem with your lawyer so legal questions or conflicts of interest can be explained or identified by a qualified ‘arms-length’ party.

Stewards of family money also need to define what family means to them. Some much-loved family members may not be blood-relatives and consideration will need to be given to split and blended families, stepchildren, new or re-partnered spouses.

Similarly, family fallouts can mean there may be a need to bypass or sidestep some sections of the family, and this will require very careful consideration as financial exclusion often brings legal action.

The obscure considerations
Financial gifts or loans to family members over the course of a lifetime can lead to perceptions of unfairness between siblings and this can lead to legal challenges to trusts or Wills.  Regardless of how long ago it may have been, acknowledging financial gifts and loans as part of an equalisation of the estate will do much to satisfy beneficiaries and potentially avoid such issues.

Some assets can be loaded with tax, particularly if they are sold.  So again there needs to be thought given to who gets what and how and if there needs to be equalisation.

Planning that includes legal advice in alignment with tax specialists for such scenarios rather than creating a situation where one or some of your beneficiaries will bear the brunt of additional and often substantial cost or getting less than others through unintentional consequences.

If protecting your wealth for future generations is important to you all of these issues need to be considered well in advance of your death and subsequent wealth transfer.

Next steps
As I’ve indicated here, there are practical steps you should implement at your earliest for a smooth and successful transfer of wealth to future generations.

The basics include comprehensive planning in advance and writing a Will or updating the one you’ve got.  There are of course, complexities and this requires sound legal advice and implementation of strategies including appropriate structures such as discretionary trusts for protecting your existing wealth and the wealth you may be set to inherit from unwelcome claims.

Investing in quality, collaborative advice that aligns legal, tax and financial planning is often worth so much more later in terms of avoiding unnecessary tax, costly legal fees, the despair of going to court and on the upside, enduring financial security for those you love.

For more information, please contact Robert Lamb, on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au.

Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in the mining and resources sectors.

The information in this article is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate, we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.

[1] https://www.ptg.act.gov.au/images/pdf/having-the-last-word.pdf

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