Business Owners - Have You Made a Will Yet?

Under the rules, if an individual dies leaving a spouse and children, the spouse will receive the first £250,000 and the rest will be divided between the spouse and the children. If there are no children, the spouse inherits the whole estate.

The intestacy rules take no account of unmarried couples so making a Will is more important otherwise children will inherit everything; if there are no children the estate goes to blood relatives. The surviving partner gets nothing.

Executors

It is normal to appoint a spouse or children as executors to administer an estate after death. It is also worth appointing a professional executor, to ensure business assets are dealt with as you wish. This can be a solicitor or accountant.

One of the reliefs from inheritance tax is Business Property Relief. Available for a business or an interest in a business, as well as land, buildings, plant and machinery used for the purpose of the business and shares in unquoted trading companies, it is currently awarded at 50% or 100%.

Businesses must be trading to qualify and if the proportion of assets held in investments is too high your business may not qualify.

Discretionary Trust

Business owners often want flexibility after death and for this reason it can be useful to leave business assets in a discretionary trust in the Will, with the surviving spouse and children as potential beneficiaries of the trust.

These flexible arrangements allow decisions to be taken after death, rather than trying to predict at the time the Will is made what the situation will be in the future. After death the business interests can be kept in trust and income paid to the children or shares can be transferred out to the children in appropriate proportions.

A trust can help protect the business if there are family members not involved in the business. If uninvolved family members inherit shares directly they may want a say in the running of the business, even if they do not have the skills or experience to be involved. Using a trust can protect against this.

Capital and Income

If you are including a trust in your Will a letter of wishes should be included to give guidance to trustees about how you envisage the trust being used after your death. The letter is not legally binding, but it can explain to your trustees how you see the capital and income of the trust fund being used after your death.

Lastly, it makes sense to ensure that company documents, such as the articles of incorporation and shareholders' agreement accord with the wishes set out in your Will. Some family businesses may only allow shares to be passed to direct descendants of the founder. A spouse or stepchildren would not be included in this case. If your Will leaves company shares to your spouse but the company’s constitution does not allow this, the gift will fail. Alternatively, if the business is run as a partnership, in the absence of a partnership agreement, the Partnership Act 1890 will apply and on the death of a partner the partnership is dissolved. Here a surviving partner would have to wind up the business.

Without a Will the wishes of the deceased will not be known. The law will step in and determine how assets are distributed leaving survivors with not what they expected.

Are you looking to make a Will? Please contact Angharad Lynn, in our Private Client team, on 020 7665 0904.

This article was first published in the August 2018 issue of Boating Business.