Where’s The Money?

A series for those journeying through family business succession.

You would think the answer to this question would be a simple one, and that an astute businessperson would know precisely where their wealth is located.

Have you created a ‘wealth-map’ so you clearly understand where your wealth is ultimately held, controlled and encumbered?

Over the past few articles, we have explored the principles of fairness in allocating wealth across family members in your succession process. A fairness that will ‘enable the compounding of wealth from generation to generation while ensuring family unity, individual growth and a sense of contribution’.

In continuing this discussion, there are two vital areas that must be addressed:

  • Where is the money?
  • Who will control that money?

Today we will consider the question of, where is the money? Often the real and ultimate owner of your wealth is not who you thought it was. The complexity of many corporate structures, taxation planning, inter-company loans, cross guarantees, bank encumbrances and the terms of your Will and your spouse’s/partner’s entitlement can effectively shift the ownership of wealth.

The easiest way to get a handle on ‘where the money is’, is to build a wealth map. A wealth map is a corporate structure diagram/s that reflect the various entities and people that exist in your business and family structures tracing to the ultimate owner.

The wealth map records a range of information that allows you to see and understand where the wealth lies and often is built in layers of information, including:

  • All legal entities that exist in the group laid out in a logical hierarchical order flowing up to the ultimate owners.
  • Colour coding allows you to readily identify which entities are involved in what activities — trading, property, investment, family/private etc.
  • Names and percentages of shareholding/unitholding and in the case of discretionary trusts, beneficiaries, appointors, guardians etc.
  • Annual EBITDA figures and market value mapped to each entity.
  • Debt to external parties quantified and mapped to each entity and also details of any guarantors.
  • Connecting lines reflecting how inter-company debt links the various entities.
  • Superannuation funds should also be included in the mapping process.
  • Country of origin/registration will also be relevant for any overseas entities, as will country of citizenship/residence for individual family members.

Your wealth map can become quite complex as you layer each form of information over your base structure, but each layer will inform and highlight aspects of your structure that will influence ultimately where the money will flow to.

I typically also transpose the same information contained on the wealth map into a table structure which allows more information to be set out and supporting documents to be indexed.

It is not unusual, in fact, it’s more common than not to discover something amiss when all this information is pulled together. Assets are not where they were thought to be, share transfers were never completed, trusts have opened the door to prospective beneficiaries who were never intended to have an entitlement, and so the list can continue.

Wealth mapping is an essential tool in effective succession planning.

An Invaluable Resource — ‘Transition — Orienteering The Lands of Succession’

A Topographical Guide For Orienteering Family Business Succession

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