Date posted: 18/01/2019 8 mins min read

Tricks and traps of advising families: an accountant’s view

People’s longer lifespans are affecting family business succession plans and estate planning. What should advisers do?

In Brief

  • Longer lifespans can see family business founders staying involved for many more years, and being reluctant to hand over the reins.
  • Regular family meetings, chaired by a professional adviser, can sort through what to do in events ranging from divorce to death, and avoid expensive legal battles later.
  • Professional advisers can also suggest ways to minimise risk when drawing up wills and choosing executors.

By David Gibbs FCA

People are living longer. While in the old days it may have been normal for men to pass away in their 70s and women in their 80s, today it’s not unusual for men to live into their 80s and for women to live five to 10 years beyond that.

We talk a lot about the ageing of our population, but spend little time analysing some of the effects that longer lives have on the planning, nature and timing of professional advice to families.

This paper attempts to draw out some examples that might be useful for practitioners in helping to advise on the affairs of their clients.

The value of regular family meetings 

Family business advisers speak openly about some of their older clients not wanting to give up control of a family business. Maybe they don’t trust or don’t wish to empower their successors in the family business, or perhaps they simply don’t have anything else they’d rather do. The effects become obvious:

  • a business fails to make key decisions in a timely fashion
  • the next generation runs out of the valuable years to lead
  • alternative life experiences are not explored nor enjoyed by the family’s older members.

So what should a family business adviser do?

Look at the governance system in the family – who makes the decisions, on what grounds do decisions get made and who is accountable.

Best practice is that a family meeting takes place at least annually, and as the family’s professional adviser you can suggest that happen. All the generations should meet, either separately or together, and in-laws might be included, too.

Such meetings may be chaired by the adviser, and should have a structured agenda. The agenda should guide communication, particularly about monies and what happens after events such as death, disablement or divorce.

But remember, there is a certain skill in learning to ‘meet’, and it takes practice to master. If the first meeting of a family is when a mum or dad dies unexpectedly, it’s going to be difficult and problematic trying to create a new governance system during this highly emotional time.

Farming families throw up plenty of examples of expensive, legally assisted fights that may have been avoided if the debate and resolution had taken place during the competent lifetime of all family members. Legal fights can leave poor legacies for aggrieved family members.

“Chartered accountants who pride themselves on being trusted advisers to families must be proactive, and keep their knowledge of their clients up to date.”
David Gibbs FCA

Get it right with estate planning

Wills and estate planning are another crucial area of governance. A well-drafted will should anticipate all sorts of events that may or may not have been present or contemplated at the time of its execution including:

  • the succession of executors unable or unwilling to act
  • assets specifically bequeathed that may not exist at the date of death
  • the responsibilities of the testator [the person whose will it is] as an appointer or trustee of other trusts
  • appointer roles in related family trusts
  • the current or future bankruptcy of beneficiaries
  • non-residency of beneficiaries and even executors
  • divorce
  • beneficiaries predeceasing the testator
  • remarriage
  • de facto relationships
  • stepchildrenother dependants.

Again, good practice recommends that the professional adviser draw a genogram – a family tree that displays detailed data on relationships among individuals – in their file notes. This could also be included in their report to the testator to flush out relationships and possible conflicts.

Mitigating risk in family succession

Having a risk framework is also a vital part of good governance. Risk is managed every day in corporations with sophisticated systems, but is rarely documented in the discharge of duties around family succession.

This gap presents an opportunity for the professional adviser to point out the risks, and to mitigate or advise on solutions.

Take a recent practical example of a fit and healthy testator in her 70s appointing her only resident daughter – 25 years younger – to be the executor or, failing her, the testator’s other two children, both of whom are non-resident. What are the risks here?

The risk is that the testator could lose testamentary capacity due to normal ageing. In this case, if the daughter predeceases her mother, the family is left with a very difficult administration by people who may not have knowledge of the mother’s wishes, how matters are to be managed in this jurisdiction, and may not be readily available to discharge their obligations as executors.

Chartered accountants who pride themselves on being trusted advisers to families must be proactive, and keep their knowledge of their clients up to date. This is the only way to ensure that the governance structure of the family is appropriate for the likely outcomes stemming from their collective and individual circumstances.

David Gibbs FCA is a partner at MV Anderson with The Bennett Group, Melbourne, members of the Walker Wayland network of independent firms. He specialises in family financial matters, is a patron of the Family Business Institute and a member of the Society of Trust and Estate Practitioners. He has served as chair of the Victorian Chartered Accountants Regional Council.

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