Many wealthy families are asset-rich but cash-poor. Their wealth sits in property, private companies, farmland, plantations or shares in a family business. When the founder dies, the estate must still pay debts, taxes, legal costs and, often, equalising payments between children. If there is not enough cash, assets may have to be sold at the wrong time, or the family may be forced into disputes about which assets go and who keeps the business.
Where the pressure comes from
- Debts and personal guarantees. Founders often guarantee loans to the family company or to children. Guarantees do not end on death; the lender may call on the estate. Margin loans and facilities secured over property may also be reviewed by lenders on death.
- Tax. Australia has no inheritance tax, but capital gains tax, stamp duty, the deceased’s final income tax and, where assets pass to beneficiaries overseas, capital gains on certain assets can all require cash. See no inheritance tax in Australia?.
- Equalisation. Where one child receives the business and others receive cash, the cash must come from somewhere.
- Family provision claims. In Victoria, eligible family members may claim against an estate. Even when a claim is resolved, the costs and any settlement reduce the estate.
- Overseas assets. Assets in China, Malaysia, Singapore or elsewhere may take months or years to realise, and foreign exchange rules may limit how quickly funds can be moved.
Planning for liquidity
- Map assets and debts together. A list of assets is not enough; each loan, guarantee and security should be recorded with the assets it affects.
- Review guarantees. Consider whether guarantees can be released or replaced while the founder is alive.
- Match gifts to cash sources. If one child is to receive a business, consider how others will be provided for and from what funds. Life insurance can play a role. See using life insurance to equalise inheritances.
- Give executors the right powers. Wills should allow executors to borrow, sell, delay sale and make distributions in specie, and to deal with overseas assets.
- Coordinate structures. Assets held in trusts and companies do not form part of the estate, but they may still be needed to meet estate obligations. Control of those structures should be clear. See control of family trusts after death.
How we assist
We advise families on estate plans that anticipate liquidity and debt, act as executor of complex estates, and work with the family’s accountants, bankers and insurers so that obligations can be met without forced sales. This article is general information only; tax and financial outcomes should be confirmed with appropriately qualified advisers. Justin Chua is a Nationally Accredited Mediator and an Affiliate member of STEP, the worldwide professional body for trust and estate practitioners.
Frequently asked questions
Does a personal guarantee end when the guarantor dies?
Generally no. A lender may be able to claim against the deceased’s estate under the guarantee. Guarantees should be reviewed as part of estate planning.
What happens if an estate does not have enough cash to pay its debts?
The executor may need to sell assets to pay debts, taxes and costs. A will that gives the executor appropriate powers, and planning for liquidity in advance, can avoid sales at the wrong time.
Can assets held in a family trust be used to pay estate debts?
Trust assets are not part of the deceased’s estate, but depending on the structure they may be relevant to the family’s overall position. Advice on the specific trust deed is needed.
How can a family provide fairly for children when the main asset is a business?
Options include insurance, staged payments, loans, or allocating other assets. The right approach depends on the family’s assets and wishes.
Chua Tan Associates advises families, executors, trustees and their professional advisers on estate planning, estate administration and estate disputes, in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice. Victorian law unless stated otherwise.
Tell us about the estate
A short message is enough. We reply in English, Mandarin or Cantonese, and quote fees in writing before any work starts.
简体中文 
English (Australia) 
繁體中文