Why you need a conditional deed in your business succession planning

by Jacqui Brauman

 

This little known legal tool could make a big difference in your business succession planning: a conditional deed.

For business owners, with family trusts or family business, succession planning can be very stressful. You’ve spent many years building up this business, which has supported you and your family, and you’ve turned it into a valuable asset. Yet, you’re concerned that if something happened to you, it would fail and your family wouldn’t continue to benefit from all your hard work. Well, there is a little known way to help the transition of ownership between generations, and it’s called a conditional deed.

The succession of a business might be gradual, with someone internal to your business or a family member starting to learn the management to take over. Yet, there are times when succession happens suddenly, due to an accident or injury. Or even a sudden illness that doesn’t give you time to help someone else learn enough.

What you don’t want is a power play between family members, or for the control of your business to fall into the wrong hands. There is the potential that you may even want different people in control of different aspects of your business.

All this needs to be thought about as part of your estate and succession planning.

In the past, I have used irrevocable resolutions as the main tool to leave instructions. As the current director or trustee of your company, you can make a resolution while you’re well. The resolution is conditional on a certain event, such as your illness, to trigger the resolution. You also declare that the resolution is irrevocable, so that it must be followed.

Yet, there are risks with this method, such as someone finding the irrevocable resolution and just throwing it out. Or not disclosing it to other family members. Or there’s even the chance that it is challenged.

Another method, that may be more effective, is using a conditional deed instead. You could make a deed, instead of an irrevocable resolution, which contains your directions if a certain event occurs. The deed may have more legal standing because it is signed by all parties – the trustee, the director, the appointor, and any other relevant roles. Rather than just as single person, such as the chair of a meeting in the case of a resolution.

The content of a conditional deed would be very similar to any conditional irrevocable resolutions. However, the form and the signing requirements are different. Hence, making it more likely to be enforced.

Curious how to create a business succession plan? Call us today for a consultation at 1300 043 103.