The Family Wealth Review: Looking Beyond Individual Assets and Documents

As family wealth grows, so does the number of structures, documents and people involved in managing it. 

A family may have several discretionary trusts, corporate trustees, investment companies, property holdings, operating businesses, superannuation, family loans and assets in different jurisdictions. 

Each arrangement may have been appropriate when it was established. 

The more important question is whether all of those arrangements still work together. 

For individuals and families with substantial or increasingly complex wealth, a periodic family wealth review can identify gaps before they become problems. 

Wealth rarely sits in one place 

Consider a family whose affairs include: 

• a family home held personally; 

• several investment properties held through different entities; 

• a family trust established 20 years ago; 

• an investment company; 

• an operating business; 

• substantial superannuation; 

• loans to adult children; 

• a private investment portfolio; and 

• Wills prepared 10 years ago. 

Reviewing only the Wills provides an incomplete picture. 

Reviewing only the trust provides an incomplete picture. 

The family's position needs to be considered as a whole. 

1. Who owns the assets? 

A useful starting point is a current asset and structure map. 

For each significant asset: Who legally owns it? 

That question matters because not every asset will pass under a Will. 

An asset may instead be held by: 

• a company; 

• a discretionary trust; 

• a unit trust; 

• an SMSF; 

• another individual; or 

• jointly with another person. 

The distinction between ownership and control becomes particularly important for succession planning. 

2. Who controls the structures? 

For a family trust, attention should not stop at identifying the trustee. 

Who has power to appoint or remove the trustee? 

What happens to that power on death or incapacity? 

If the trustee is a company, who owns the shares and who will control the board? 

These questions can ultimately determine who controls substantial family wealth. 

Example 

A family trust holds $8 million of property and investments. 

The parents' Wills carefully divide their personal estates equally between their children. 

But the trust assets do not simply form part of those estates. 

If succession to control of the trust has not also been addressed, the family's most valuable structure may not transition in the way the parents intended. 

This is why estate planning should extend beyond the Will. 

3. Are old structures still serving their original purpose? 

A trust or company may have been established decades earlier for a particular business, investment or family reason. 

Circumstances change. Children become adults. Businesses are sold. New assets are acquired. Family members move overseas. Tax laws change. Relationships change. 

That does not mean an existing structure should automatically be changed. 

Restructuring itself can have taxation, duty, financing, asset-protection and other consequences. 

It does mean the family should periodically ask: Why do we still have this structure and what function does it now perform? 

The answer should be clearer than "our accountant set it up years ago". 

4. What money has moved within the family? 

Family wealth planning should identify significant loans and advances between family members and entities. 

Examples include: 

• parents funding children's property purchases; 

• loans between trusts and companies; 

• money advanced to family businesses; 

• shareholder loans; and 

• amounts owing between related entities. 

These arrangements can become particularly important on death, separation, business failure or a future family dispute. 

The documentation should reflect what the parties actually intend. 

5. What guarantees and liabilities exist? 

Families understandably focus on what they own. 

A wealth review should also examine what they have put at risk. 

A person may have guaranteed: 

• business borrowings; 

• property loans; 

• leases; 

• debts of related companies; or 

• obligations of children or other family members. 

A guarantee signed years earlier may remain relevant long after the transaction that originally prompted it. 

Understanding contingent liabilities is part of understanding the family's true financial position. 

6. What happens if the key decision-maker cannot act tomorrow? 

Succession planning should address incapacity as well as death. 

If one person presently makes most of the decisions for the family, consider what happens if that person suddenly cannot act. 

Who can operate bank accounts? 

Who can exercise shareholder rights? 

Who controls the family trust? 

Who can make investment decisions? 

Who can operate the business? 

Are appropriate powers of attorney and other succession arrangements in place? 

A structure that works perfectly while its founder is actively controlling it may become considerably more difficult when that person is unexpectedly absent. 

7. Are the estate plan and the structures aligned? 

Wills, powers of attorney, trust deeds, company constitutions, shareholder agreements and superannuation arrangements should not be prepared in isolation. 

Example 

A business owner intends for one child to take over the family business while the other children receive other assets. 

That intention may need to be reflected across: 

• the Will; 

• the ownership of the business; 

• any family trust; 

• the company's constitution; 

• shareholder arrangements; 

• insurance; 

• funding arrangements; and 

• the broader division of family wealth. 

Changing the Will alone may not achieve the intended result. 

8. Have major family circumstances changed? 

A review becomes particularly important following significant events, such as: 

• marriage or separation; 

• birth of children or grandchildren; 

• death or incapacity; 

• sale or acquisition of a business; 

• substantial property transactions; 

• movement overseas; 

• significant inheritances; 

• retirement; or 

• major changes in the family's financial position. 

Family governance also becomes increasingly important as more generations and family members become involved. 

9. Is there a governance framework? 

As family wealth becomes more substantial, decision-making can become as important as ownership. 

Questions may include: 

• Who makes investment decisions? 

• Which decisions require broader family approval? 

• How are conflicts managed? 

• What information is provided to family members? 

• Who deals with external advisers? 

• How are philanthropic decisions made? 

• How will the next generation become involved? 

For some families, these matters can be dealt with informally. 

For others, a more structured family governance framework, family charter or family office arrangement may be appropriate. 

10. Are the advisers working from the same plan? 

Complex family wealth frequently involves lawyers, accountants, tax advisers, investment advisers, bankers and insurance advisers. 

Each may provide excellent advice within their own discipline. 

Problems can arise when decisions are made in isolation. 

A tax-efficient restructure may have asset-protection or succession consequences. An estate-planning strategy may affect control of a business. A property acquisition may create duty or land-tax considerations. A financing arrangement may expose assets through guarantees. 

For significant family decisions, coordination between advisers can therefore be as important as the advice itself. 

The purpose is not constant restructuring 

A family wealth review does not mean structures should be changed every year. 

Quite the opposite. 

The purpose is to understand what is already in place, confirm that it remains appropriate and identify issues requiring attention. 

Sometimes the conclusion will be that no change is required. 

That is still a valuable conclusion when reached after an informed review. 

From individual documents to a family strategy 

For families with substantial wealth, the question should increasingly move from: 

"Do we have the right documents?" 

to: 

"Do our structures, documents and decision-making arrangements work together to protect and transition the family's wealth?" 

At KCT Legal, we work with high net worth individuals, multigenerational families, business owners and family offices on asset protection, succession, family governance and the legal structures through which family wealth is owned and managed. Where appropriate, we work alongside the family's accounting, taxation, investment and other advisers to provide a coordinated approach. 

This article provides general information only and does not constitute legal, taxation, financial or investment advice. Family wealth structures should be reviewed having regard to the particular family's circumstances and with appropriate professional advice.