Business Structure & Estate Planning with Gerard Houlihan
Below is a transcript of Gerard Houlihan’s interview with Aaron Stevens of 990 4RO from Monday 21 March 2016.
Yes, good morning Aaron. Good to be back.
And we have had a couple of questions asked which we opened it up right from the start. If you do have a question, go to the website and you can post any questions about estate and succession planning to put to Gerard when he comes in.
The first question we have is “What difference does it make if I operate my business as a sole trader, or through a company?”, “Do I need to consider this when making my Will?”
Yes, Aaron, most definitely you do. What we must remember is when a director or a controller of a company dies, the company doesn’t die. So a person can only leave assets that they personally own through their Will.
I have had an example not that long ago where a client of mine said, “Look, in general terms, what I want to do is to leave the building I own in Denham Street to my daughter and leave everything else to my son”.
And I said to him, “You don’t own a building in Denham Street.”
He said, “Yes I do, you did it for me two or three years ago.”
And I said, “No, your company owns that building. So when you die, if you write a Will like that, your company will still own that building, the Will says your son gets everything else, your son gets the shares you own in that company, your son ends up owning the building as the underlying shareholder of the company.”
So you need to be very very careful to understand, as I said in our first interview a couple of weeks ago, what you own personally, what your structures are, what companies own, etc.
And it’s interesting because we continue on with a similar type question, this one’s from Reg, “I operate a grazing partnership with my wife, we are equal partners 50/50. The partnership owns the grazing block, the cattle and the machinery.”
What he wants to do, is he wants to leave his share of the land to his wife, but his half of the cattle and the machinery to his son. I’ll ask in a moment is this possible, but I guess that sort of is the situation that we’re talking about where things become really complicated, don’t they?
You know, it is important to know what falls in what basket. And in this case with Reg, what he has is really only one asset. He has a 50% interest in a partnership. He doesn’t have cattle, plant and land; he has a 50% interest in a partnership.
And I often say to clients, it’s like my situation at Rees R & Sydney Jones. I own an interest in the partnership. I can’t leave my computer to my son, my desk to my wife, and my chair to my daughter. I don’t own any of those assets; I own a percentage in a partnership. And in this case, Reg has just that. He has got one asset – a 50% interest in a partnership – so it would be impossible for him to split those assets and leave different assets to different beneficiaries. He needs some structure and advice, if he wants to go that way, to restructure the way in which he holds the assets and then he can deal with them individually through his Will if they are structured correctly.
So that would be your advice?
It would be, yes. If he wants to leave the land to his wife, the land should be removed from the partnership. There are some consequences of that, he needs to get both accounting and legal advice, but it can be done. If it is outside the partnership, he can deal with the land by leaving his interest to his wife, and then he can say “my interest in the partnership”, which will then be the cattle and the plant, “to my son”.
Yeah well I really appreciate that letter from Reg because that really does put it into very clear terms about the difficulties and exactly the way we should be approaching this.
Very much so, and as we mentioned at the last chat we had, there are other structures like trusts that are even more complex and we can deal with those on another day, particularly if anyone has any questions that they want to send into the station about trusts and the way in which they might work with their succession planning, but even if we don’t get questions from the listeners, I’ll deal with that on another day.
Alright, you can do that through the website 4RO.com.au. And if we want to contact you?
Gerard Houlihan, I am with Rees R & Sydney Jones Solicitors in Denham Street, Rockhampton. Telephone is 4927 6333 or they can email me on email@example.com.
Gerard, good to see you again. Thank you.
Thanks Aaron, good to be here.