Beneficiary Who Owns A Business – Flexible Will “Saves the Inheritance”

Asset protections for a beneficiary who owns a business

People in business are always at risk of being sued. Often, business owners (if properly advised) structure their affairs to protect their personal assets from claims.

If you have named a beneficiary who owns a business, there are significant asset protections to be had from a Flexible Will.

A Flexible Will incorporating a testamentary trust is a more flexible structure for the beneficiary. Each beneficiary can choose, at the time of your death, whether or not they want to take advantage of the more flexible option. If a beneficiary chooses not to take advantage of the more flexible structure, then the Flexible Will simply operates just like a traditional will.

The benefits of a Flexible Will for a beneficiary who owns a business are highlighted in the following example:-

Peter, John and Mary were partners in a business.  Peter ran away with all of the business assets, leaving the business to flounder (and poor John and Mary to cope).

At the time of Peter running away, the business owed $800,000 to creditors and was subject to a claim for $200,000 for an error made by Peter.

Both John and Mary’s parents were on holidays together.  Tragically, their bus crashed and they all died. 

The following occurred:

WillJohn’s parents did a Traditional Will. Under the will John was left everything.Mary’s parents left a Flexible Will, in which they established a testamentary trust for Mary.
EstateJohn’s parents were reasonably well off – they left an estate of $500,000.00.Mary’s parents were not as well off – they left an estate of $300,000.
Allocation of EstateThe creditors of the business soon discovered John had received an inheritance.  They quickly seized the funds, leaving John with nothing.The creditors of the business also discovered Mary’s parents had died.  They also tried to seize her inheritance but could not do so – it was locked up in the testamentary trust.
FlexibilityUnfortunately, John had no option but to wave his inheritance goodbye.The creditors of the business threatened Mary with bankruptcy. Mary had the flexibility of: Going bankrupt (and protecting all the inheritance); or Making a deal with the creditors.  Mary made a deal with the creditors under which she paid them $100,000.00 for a release.
ResultAll of the inheritance intended for John ended up in the hands of the business creditors.  Poor John received nothing.$100,000 of the inheritance ended up in the hands of the business creditors.  However, $200,000 was salvaged for Mary.

To find out more about whether a Flexible Will is right for you, contact us.

Ross Mason
Ross Mason

25 Mar, 2019

The information in this article is intended to provide general information only and does not constitute legal advice. If you require legal advice specific to your particular circumstances, you must formally engage a lawyer or law firm. The law is subject to change, and whilst we strive to keep our content up-to-date, developments may occur after publication. The information contained on our website should not be relied upon or used as a definitive or complete statement of the relevant law. Mason Lawyers takes no responsibility for any use of the information provided. Liability limited by a scheme approved under Professional Standards Legislation.

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