It is estimated that as many as two-thirds of people in the UK die without a Will even though many of us own property, investments and businesses worth substantial sums.
There are many good reasons to have an up-to-date Will in place – mostly so that that your assets pass to your chosen beneficiaries without any unnecessary formalities and with minimum Inheritance Tax. Many couples believe that if they do not leave a Will their estates will pass to each other automatically but even with recent changes to the intestacy rules this is not always the case and children (and sometimes parents and siblings) might inherit instead. The position for unmarried couples is even worse as they have no immediate legal rights in each other’s estates at all. Drawing up and regularly reviewing your Will is therefore a sensible step for everyone.
The business owner has additional factors to consider depending on the nature and structure of their business, and also the practical implications of their unexpected death.
Succession Planning will vary from business to business. Sole traders will have to consider what the assets of their business are. It might be the case that the business and any goodwill will die with the sole trader and there is no viable business for the family to take forward, but equally it may be possible that family or employees could take over and run the business, or the business could be sold.
Partnerships have their own problems as the law provides that a partnership dissolves on the death of a partner. This would prevent a smooth transition to the surviving partners and it is best to have a written Partnership Agreement disapplying the automatic rules to allow the partnership to continue for the benefit of the surviving partners.
If the business is a private company then the Company’s Articles of Association need to be reviewed to ensure that shares can be transferred to chosen beneficiaries, and to check the rights of other shareholders.
There are many practical matters to consider – e.g. can someone sign cheques if the main business owner dies? Has he or she special knowledge or skills that no-one else in the business has? What about cash flow? It may be that one or more insurance policies should be taken out to help e.g. key man insurance or shareholder cover.
Valuation of the business is another important factor both for tax reasons and if the beneficiaries are looking to sell the business.
Inheritance Tax can be a major consideration. Many businesses will qualify for Business Property Relief at either 100% or 50% and can often be passed on to children free of Inheritance Tax. Not all businesses qualify however and specialist advice needs to be taken here.
In summary, there is a lot for a business owner to think about when drawing up a Will. The prosperity of their family, and the safe future of their business and its employees will depend upon their careful planning.