Vicky Timothy, Senior Associate Solicitor in our Private Client team, outlines the main benefits of Wills for business owners and, also, some of the risks you may wish to avoid if you die intestate (without a Will in place).
There are many reasons why business owners should ensure that they have a Will in place. Wills are often pushed to the bottom of the ‘to do’ list, particularly when you are busy juggling home life and running a business. However, a number of our clients have been using this time to think about what would happen to the business if the worst happened and to put their ‘house in order.’
If you are in business with other people, it would be good to consider this together. If one of your co-business owners were to die unexpectedly, this could have a huge impact on your business’ livelihood.
Benefits of Wills for Business Owners
- Appoint somebody to continue the business for you
Executors can be appointed in your Will to ensure the running of the business in the event that you die. It’s important that it continues to be run by someone with the experience and skills to do so.
You may want the business to continue to be run by your co-owners and to pass to those people who are involved, have knowledge of the business and share the same vision. Alternatively, you could name who should continue to run the business before a sale in order to benefit your family.
- Ensuring the right people inherit your business
Aside from appointing people to run the business for you, you can also name who should benefit from your business and the remainder of your estate. If you die without a Will, the intestacy provisions set out who should inherit, with some surprising results. For example, if you are married, it is not necessarily the case that your spouse will inherit all of your assets.
- Help mitigate tax through business property relief
Your Will can be structured to make the most of business property relief and be as tax efficient as possible. Business property relief could mean your business passes 100% inheritance tax free, but there are a few common pitfalls where an individual dies without a Will, which means that this valuable relief is lost.
Risks of Dying Without a Will
Whether you are a sole trader, partner, director or shareholder of a company, if you die without a Will, you should be aware of some of the risks that can occur. Dying intestate could mean that the business:
- falls on the family, to handle the administration of the estate at a time of bereavement;
- risks delays as no-one has authority to deal with the business until a grant has been obtained from the Court, which can have a detrimental effect on the business;
- is owned by a spouse or family members with the remaining business owners which may lead to conflicts;
- could be inherited by minor children, which may make it extremely difficult for the business to continue; and
- has to be sold if the beneficiaries don’t want to keep it.
These difficulties may risk the business devaluating and hence sell at a decreased value, especially if there are pressures to sell quickly and the business is not being well managed in the meantime.
Reviewing Your Will
When reviewing your Will, remember to review the structure of your business and the relevant business documents at the same time. Make sure that you know what would happen to your share of the business upon your death and consider changing this if it does not reflect your wishes.
If you are in business with others, either via a partnership or company, it may be worth checking if your co-business owners also have a Will in place, as this may have an impact on your business if the unexpected happens.
A partnership agreement should be in place, especially if you want the partners to have the option to buy your interest and continue the business.
If it’s a company, there may be restrictions on how shares pass upon death and the documentation should tie in with the Will provisions whilst also protecting any relief from inheritance tax.
Wills come into effect on death and it is equally important to ensure you have a Lasting Power of Attorney (LPA) in place whilst you are alive to ensure the running of the business if you were to lose capacity.
Although not the cheeriest of topics, having an up-to-date Will and LPA in place could have a huge impact and will provide peace of mind should anything happen in future.