Four reasons why a will dispute can lead to family business failure
When a family member passes away, it is an emotional and turbulent time. Feelings of loss and sadness are mixed with worry and uncertainty about what the future holds for those left behind, both personally and financially.
If the deceased is involved in the family business, this can become far trickier. Debra Burton, an associate in our contentious probate team explains the main reasons why disputes arise and what can be done to limit the impact on the family business.
1. The deceased intentions haven’t been communicated
The business will form part of the deceased’s estate and will pass under their will or, if there is no will, in accordance with the rules of intestacy. Other family members may be involved in that business and so they are likely to be very interested in what happens to it. Hopefully, the deceased will have already planned for the future and taken proper legal advice about who should inherit the family business and the most tax efficient way of doing so. However, the testator may find it awkward to have the conversation about what is to happen to their assets after their death and so will leave it to others to sort out. The family members may each feel that they know what the deceased would have wanted and how best to interpret their wishes which could lead to a dispute. It is always a good idea to communicate to beneficiaries and the wider family at the earliest opportunity but that often does not happen.
2. Promises were made and not kept
Despite the best efforts and intentions of the deceased, there may be a disappointed family member who is not happy about who is due to inherit the business. This is often the case where one family member has worked in the family business for a long time, such as a partner or joint shareholder, on the basis of promises or an unspoken understanding that they would inherit it upon the deceased’s death.
A family member may claim that the business had been promised to them long before the will was made, and they could argue that the deceased had a duty to honour that promise and were not free to leave the business to anyone else other than them.
It can come as a real shock that the business has been left to someone else who in their eyes may not deserve it. This can cause feelings of resentment, bewilderment, envy and anger towards the deceased and the intended beneficiary.
3. The deceased capacity was in question
A disgruntled family member may allege that the will (or the life time transfer of the business) is not valid because the deceased did not have capacity at the time to make it. This is a very common allegation if the individual was particularly old or unwell. Whilst the deceased may have felt it was perfect timing to sort out their affairs, the disappointed family members could view it differently. They may not accept that the deceased had good reasons for making the will and may use age or illness as evidence that they were unwell and vulnerable at the time it was made and so wasn’t valid.
4. Reasonable financial provision was not considered
Alternatively, the family member may accept that the will is valid but believe that it doesn’t make reasonable provision for them based on their individual circumstances and they should have received more from the deceased’s estate.
What happens if a family member challenges the will?
A dispute from a family member has the potential to unravel the deceased’s wishes and create uncertainty for the family business. If any claim is made against the estate the final ownership of the business interest will remain in limbo until that claim is resolved. If the deceased was the majority shareholder in the business, then this could mean that decisions requiring shareholder approval could also be on hold.
The first step that a disappointed beneficiary is likely to take is to prevent the executors from getting a grant of probate. Without a grant of probate, the executors may not be able to deal with the business interest. Ordinarily the executors would have the authority to run the business until it is sold or transferred. However, if the will appointing those executors has been challenged by a disappointed family member, then it is unlikely that they will be happy to allow those executors to run the show whilst the dispute is being sorted out.
How long does a will challenge take?
Will challenges can take many months if not years to be resolved, especially in cases where there is a large amount of hostility between the parties. If there is no one who can make decisions on behalf of the business in the interim (such as those who have access to the bank account) then the business’ reputation could suffer and at worst, the business could fail.
What can be done to prevent a dispute?
Whilst it is not possible to prevent a claim being made against an estate by a disappointed beneficiary entirely, the individual considering making a will can take steps to minimise the risk by taking proper legal advice at the start to help to reduce problems later down the line. The solicitor instructed to draft the will can check that the individual has capacity to make such decisions and they should make a detailed written note setting out what the individual’s instructions were for their will and the reasons.
A solicitor should also enquire about any promises that may have been made to others about the business interest or any family members who may have a financial provision claim. The will can therefore address the choices and a note of explanation can be provided to form invaluable evidence should a dispute later arise. Prior communication with the family is also advisable.
If a claim is made against an estate involving a family business, acting quickly and taking specialist advice is key. All the parties should aim to agree on the appointment of an independent administrator to get an interim grant as soon as possible. Whilst the beneficiaries are left to fight it out between themselves, the independent administrator can make the key decisions to ensure the business’ survival and ensure that there is still something left worth fighting about.