It’s that time of year again and prudent businesses will have already completed their tax planning for the year. In the lead up to the end of the financial year we should all take time to reflect on the past 12 months and commence planning for the year to come. It’s also a time to review and carry out a health check on our business structures to ensure that they meet our current needs and plans for the future.
I never cease to be amazed by the number of instances in which we discover that what clients thought was possible within their existing structures is simply not available to them. In other cases, documents have been found to be out of date; passed their use by date; or inadequate, having regard to the requirements of current legislation or the future needs of their family or business.
Here are just a few examples of the potential disasters which we have uncovered in the past 12 months:
* In 1998, the directors of a corporate trustee purported to amend their trust deed to include the corporate trustee as a beneficiary of the trust. Distributions of income were then made to the corporate trustee each year following the amendment. A review of the trust deed revealed that it expressly prohibited the corporate trustee from becoming a beneficiary of the trust.
* Upon the death of the family patriarch, a family discretionary trust was amended so that it became a fixed trust with three named beneficiaries. However, the Trustee continued to make distributions of income to the adult children of one of the named beneficiaries, as if the trust remained a discretionary trust. It appears that the accountants for the trustee had never been advised about the changes to the deed.
* A trust established in the 1980s provided for it to vest upon the 30th birthday of one of the named beneficiaries. That birthday occurred in 2009, however the trustee continued to administer the trust as if it had not vested.
* After the death of the sole director of a corporate trustee and the Appointor of the trust, it was discovered that the deceased attempted to give the trust assets away in his Will. There was no provision in the trust deed allowing for this to occur.
* A review of a self-managed superannuation fund revealed that it owned business real property, in this case a farm, without appropriate binding death benefit nominations which would ensure that the farming property ended up in the right hands.
At a time when many businesses are reviewing their financial performance and plans for the coming 12 months, we recommend that a review is also undertaken to ensure the structural health of all business and family entities. Regular business health checks will ensure that your business and family will not suffer unintended consequences which can readily occur when appropriate attention is not paid to these important matters.
DDCS Lawyers can carry out the review and provide you with expert advice in relation to all aspects of your business structures and succession planning. To make an appointment with one of our experts, contact us on (02) 6212 7600.
Phillip Davey is a Partner of the firm.
18 Kendall Lane,New Acton, Canberra
phone (02) 6212 7600