Making sure you have an up-to-date will
Having an up-to-date will in place is the only way that you can guarantee that your wishes are carried out on your death. Dying without a will means your estate will pass in accordance with the intestacy rules. And if you are a business owner and this happens it could have massive implications for your business and your family.
What having a will in place means for your family
There are several scenarios to consider:
- What happens if your business assets are inherited by your spouse, civil partner, or other family members who are not “in the business” and know nothing about it or, worse perhaps, do not have the knowledge or skills to run it. Your business which you have spent years building could be damaged following your death and it may no longer be able to continue providing for your family into the future.
- Consider whether your business partners could work with your spouse, civil partner or other family members. Would they be prepared to bring them up to speed with the business or would they have the means to buy them out?
- If your business is run as a partnership, the death of a partner who has no will in place could lead to the business being dissolved automatically if there is no partnership agreement drawn up either. Regardless of the surviving partners’ wishes, they would need to sell off the business and its underlying assets.
Having an appropriately drafted will in place could mean that the most suitable people can continue to run the business and family can still benefit from the value of the business.
If your family have no desire to inherit the business, your will can stipulate that your business partners inherit the same and the cash value is inherited by family instead.
It is important that, where possible, Business Property Relief (BPR) is available to your personal representatives in order to exempt the business assets from Inheritance Tax (IHT) and crystallise this relief as soon as possible ideally having had the position agreed by HMRC following your death.
To do this, it may be necessary to pass your business assets into a trust structure. A trust, unlike a surviving spouse or civil partner, is a non-exempt beneficiary for IHT purposes and as such, BPR would be claimed by your Personal Representatives to ensure that no IHT is payable still.
Other options for your will
Your surviving spouse, civil partner or family can benefit from the business assets while they remain in the trust but the value of the business assets is outside of their own estates. Alternatively, your family could purchase the business assets from the trust using assets they have inherited from your estate swapping BPR assets in the trust for cash (which then falls out of their estate). Once they have owned the business assets for two years they will then again potentially qualify for BPR on their own deaths.
Be aware, however, that even if you have a will that deals with business assets, there should still be a shareholders agreement or partnership agreement in place and all business partners should be aware of what happens when one of them dies.
Consider putting in place a cross option agreement if you leave your business assets to anyone other than your business partners as this will enable the surviving business partners to purchase the business assets from your family under the terms of a shareholders agreement or partnership agreement.
There is a lot to consider and many options available and it is essential that you get the right advice to ensure the survival of your business, and the best outcome for your employees and your family.
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The current pandemic has brought an increase in the number of people making wills, many of them homemade. However, many of these Wills can be badly drafted and fail to deal with all the assets that a person has, particularly their digital assets.
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Based in the firm’s Milton Keynes office, Matt advises his clients on tax efficient estate planning options which could include the preparation of Wills, trusts, deeds of gift and deeds of variation.