Most family groups have a drawer full of legal documents: a trust deed from the 1990s, a company constitution bought off the shelf, Wills signed before the grandchildren were born, perhaps a shareholders’ agreement drafted when the business was half its current size. Each was sensible when it was made. Few have been tested against what might actually happen next.
Engineers stress-test a bridge before traffic crosses it. Families can do the same with their documents: take each realistic scenario, play it forward, and see whether the documents produce the outcome the family wants, or a crisis.
For Chinese and Asian families, the scenarios often have an extra layer: children who have settled in another country, assets in several jurisdictions, and an older generation that has never discussed these questions openly. This checklist is designed to help you have that conversation in a structured way.
Before you start: gather the documents
You cannot test what you have not read. Collect, for every entity and every key family member:
- trust deeds and every variation, for family trusts and unit trusts;
- company constitutions and share registers;
- shareholders’ and unitholders’ agreements;
- Wills, enduring powers of attorney and other substitute decision-making appointments;
- superannuation death benefit nominations and the SMSF deed;
- any binding financial agreements under the Family Law Act;
- bank mandates, loan agreements and guarantees;
- overseas Wills and company documents.
Scenario 1: The founder dies
- Who becomes appointor or guardian of each trust? Is a successor named, or does the role pass to the executor?
- Who inherits the founder’s shares in the trustee company and operating companies, and are they the people the family expects?
- If the founder was the sole director, who can appoint a new one, and how quickly?
- Do loans owed by the trust or company to the founder pass under the Will, and to whom?
- Do the Will, trust deed and super nominations point in the same direction?
- Do the founder’s overseas Wills and Australian Will work together, or might one revoke the other?
Scenario 2: The founder loses capacity
- Is there a current enduring power of attorney, and does it cover shares and business decisions?
- Does the trust deed say what happens to the appointor role on incapacity, and how incapacity is established?
- Does the company constitution provide for a director who becomes incapable?
- Who can sign on the bank accounts tomorrow?
- Incapacity is often gradual. Do the documents deal with the period when the founder is declining but still in charge?
Scenario 3: A child divorces
- Does the child hold shares, units or an appointor role personally? Under Australian family law, property and financial resources a party controls may be taken into account in a property settlement, and courts have looked through trusts that a party effectively controls.
- Does the shareholders’ agreement or constitution restrict transfers to a former spouse, or give the family an option to buy shares if a court orders a transfer?
- Has the family considered whether a binding financial agreement is appropriate for a child entering a marriage or de facto relationship? These must meet strict requirements, including independent legal advice for each party.
- Are loans from the family to the child documented, so they are treated as loans and not gifts?
Scenario 4: A sibling wants out
- Is there an exit right, and does the family have a first right to buy?
- How is the price set: an agreed formula, an independent valuer, or nothing at all?
- Is there a minority discount, and has everyone understood it?
- Where does the money come from: company funds, borrowing, staged payments, or the other siblings?
- Without an exit mechanism, an unhappy shareholder may resort to the court remedies for oppression or seek a winding up on the just and equitable ground. Planning exit in advance is far cheaper.
Scenario 5: A family member moves overseas
- Will the move change their tax residency? The ATO applies several residency tests, and becoming a non-resident can have capital gains tax consequences for some assets.
- If that person is a director of the trustee company, or controls it, could the trust’s residency status be affected?
- Will the company still have a director who ordinarily resides in Australia, as a proprietary company requires?
- Do distributions to a non-resident beneficiary change the tax outcome, including withholding?
- Can documents be signed and witnessed from the new country, and will they need notarisation?
- Do foreign beneficiary provisions in trust deeds and Wills need review, given state land tax and duty surcharges for foreign persons?
Scenario 6: A founder who will not step back
- Is there an agreed retirement age, transition timetable or role for the founder after they hand over management?
- Is ownership separated from management, so the founder can keep economic security without blocking decisions?
- Does the board have any member able to raise the issue, such as an independent director?
- Is the founder’s own financial security planned, so that letting go does not feel like losing everything?
This scenario is rarely about documents alone. It is often about respect, identity and face, and it usually needs conversation before any drafting.
Scenario 7: Bankruptcy
- If a family member becomes bankrupt, their personal property, including shares, generally vests in the trustee in bankruptcy.
- An undischarged bankrupt is automatically disqualified from managing a corporation without court leave. Who replaces them as director?
- Does the trust deed remove a bankrupt person from roles such as appointor, or exclude them as a beneficiary while bankrupt?
- Does the shareholders’ agreement give the family an option to buy shares on bankruptcy?
Scenario 8: A dispute between branches
- Do the branches have equal votes on the board, and what happens on deadlock? Is there a casting vote, an independent chair, or a buy-sell mechanism?
- Is there a written dispute process with steps in order: family meeting, independent facilitator, mediation, expert determination or arbitration, and court only as a last resort?
- Can one branch block distributions, or force a sale of the main asset?
How to run the stress test
- Choose two or three scenarios that feel most likely for your family.
- For each, write down what the family wants to happen.
- With your lawyer and accountant, trace what the documents actually say would happen.
- List the gaps between the two.
- Decide which gaps need legal documents and which need a family conversation or policy.
- Fix the urgent gaps first, usually Wills, powers of attorney and appointor succession.
- Repeat the test at each life event: a marriage, a birth, a death, a move overseas, a sale or acquisition.
Frequently asked questions
What should a family business succession checklist include?
It should cover control of each trust and company, ownership and exit, Wills and powers of attorney, superannuation, tax residency of key people, and a dispute process. Above all, it should test the documents against realistic scenarios rather than just list them.
How often should we review our family business documents?
At least every few years, and after any major life event: a death, marriage, separation, birth, move overseas or significant change in the business. Tax and legal changes can also make a review worthwhile.
What happens to family business shares if a child divorces?
The family court may take into account property and resources the child owns or controls. Transfer restrictions, buy-back options and, where appropriate, financial agreements can reduce the risk that shares leave the family.
Does moving overseas affect a family trust?
It can. A change of residency can affect the individual’s tax position, the tax treatment of distributions, and in some cases the trust’s own residency if control moves offshore. Get tax advice before the move.
How Chua Tan Associates can help
We work through these scenarios with families, reading the actual trust deeds, constitutions, agreements and estate documents together, showing where they would produce an unexpected result, and fixing the gaps in a practical order. Justin Chua is a Nationally Accredited Mediator and an Accredited Family Business Advisor who trained in accounting, and we work alongside the family’s accountant on the tax questions, which should always be confirmed with a qualified tax adviser. We assist families across Australia and overseas, work with local lawyers where assets or family members are in other countries, have a notary public for overseas documents, and advise in English, Mandarin and Cantonese.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in 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.
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