There are many surprising and often shocking horror stories when it comes to estate planning.

One famous example is Robert Holmes á Court, who rumour has it, still had his Will unsigned in his briefcase when he died! However, more often these stories are simply the result of poor estate planning, and the impact this has on surviving family members is often devastating and sadly, nothing like the intent we may have wished.

One situation that should be carefully planned for in a persons estate is what will happen to the family business.

For many business owners, the business that they have built up through years of hard work and commitment will represent the lion share of their estate assets. That is, the business will be of far greater value than their personal assets (for example their home) or other assets such as superannuation combined.

Selling the business on the owner's death with the proceeds going to the estate is the obvious option, but what if the owner has one child who has worked in, and intends
to carry on, the business after their parent's death - and another child who has little interest in the business or its continuation?

Bequeathing the business (and its value) to the interested child only is a situation that may be unwanted (i.e. does not treat all children the same) and one that can likely be legally challenged by the disadvantaged sibling. A challenge may force the interested child to take out a loan to make an equalisation payment in order to retain control of the business - or if this is not possible - require them to sell the business to settle the estate.

Both of these outcomes are unlikely to have been intended by the Will maker.

In a situation such as this, the business owner may consider using a strategy known as estate equalisation. This is a strategy used to create wealth to offset the value of indivisible asset (the business) through the use of life insurance.

In this instance, the Will maker would seek to increase their life insurance benefit, so that the business value is equal to the value of all their other assets plus the insurance, ensuring fair distribution.

The intended outcome is that all beneficiaries receive equal financial benefit and the business remains in the family.

Financial Planning Pty Ltd ABN 51 060 092 631 (WHKFP). This is an information service only and is not financial advice. WHK and WHKFP do not provide any warranty regarding the accuracy and completeness of information in this newsletter. All material contained in this newsletter is based on opinions, conclusions and forecasts that are reasonably held at the time this newsletter was compiled. WHK and WHKFP assume no obligation to update the material to reflect any changes.

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No action should be taken solely on the material contained in this newsletter as the information is of a general nature and does not take into account personal circumstances. Before acting on any material contained in this newsletter you should seek professional advice.

WHKFP is the holder of Australian Financial Services Licence number 238244. WHKFP and WHK are both WHK Group firms. Produced in January 2011. © Copyright 2011