The Importance of Wills for Business Owners
The precarious nature of the CoronaVirus pandemic has given business owners plenty to evaluate as markets and the business landscape changes. In amongst having to make various decisions about planning and strategy, the pandemic brought into focus the need to take measures to protect the interests of the business long-term and safeguard their assets by ensuring they have an up-to-date will in place.
Making a Will is often pushed down to the bottom of the ‘to do’ list, particularly when business is booming and you have a busy home life. However, as tragic and extreme as it may seem, if one of your co-business owners were to fall ill and die unexpectedly, this could have a huge impact on the livelihood of your business.
So what are the benefits of a Business Will?
1. Appointing people to continue the business
In a will, you will be able to appoint Executors to ensure the day to day running of the business in the event that you die. Assigning Executors who know the business, such as co-owners and key stakeholders who share the same vision for the business may be of paramount importance.
2. Ensure that 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. Every business owner will no doubt hate the prospect of their business and its assets falling into the wrong hands. It’s often perceived that everything would naturally be assigned to their Partner/close relative but is not necessarily the case.
3. Avoid the risk of dying ‘intestate’
If you die and haven’t made a Will, it is known as dying ‘intestate’. This effectively means that the law will decide what happens to your business – not you. Whatever business ownership structure, there are various risks that business owners and majority shareholders should be aware of if you do die intestate. These can include the following:
- Could cause delays and significant interruption to the business as until a grant has been obtained by the court, nobody has the relevant authority to deal with the business, which can have a considerable detrimental effect;
- Falls to a (could even be distant) family member to sort out what happens to the business at a time of bereavement;
- The business could be inherited by minor children, which may make it extremely difficult for the business to continue operating; and
- The business having to be sold if the beneficiaries don’t want to keep it.
Some of these effects can significantly interrupt the business and have a detrimental effect on its value. There may end up being pressure to sell the business quickly (depending upon who ends up in control of the business) which could reduce its value even further.
4. Help mitigate tax through business property relief
If you own business assets, business property relief (BPR) is a very valuable relief from inheritance tax (IHR) which can reduce the tax on those assets to nil, but when an individual dies without a will the valuable relief is lost.
Your Will should be structured to make the most of business property relief by looking at the fundamentals of BPR and how it might benefit your estate.
Broadly speaking, IHT is payable at 40% on estates which exceed the value of £325,000. BPR works by reducing the taxable value of the business assets by either 50% or 100% depending on the nature of the asset and how it is used.
Relevant assets are generally assigned the following rates of relief (If your will is structured appropriately):
Type – Rate of relief
- A business or an interest in a business – 100%
- Unquoted shares, including shares listed on the Alternative Investment Market (AIM) – 100%
- Unquoted securities which on their own or combined with other unquoted shares or securities give control of an unquoted company – 100%
- Quoted shares which give control of the company – 50%
- Land or buildings, machinery or plant used wholly or mainly for the purposes of the business carried on by a company or partnership – 50%
- Land or buildings, machinery or plant available under a life interest and used in a business carried on by the beneficiary – 50%
Wills for Business Owners – What should you do?
Make sure you have a will written up by a professional so that you can have peace of mind about the future of your family and your business. It can have huge financial implications for your family and people associated with your business if no forward planning has taken place in the event of your death.
What if you already have a will?
You should review your will to ensure that your will reflects the structure of your business and accounts for all its assets. 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.
Lasting Powers of Attorney
The importance of an LPA couldn’t be stressed enough for business owners. This is a legal document that allows someone you trust to make decisions on your behalf at a time when you lack the mental capacity to make those decisions yourself through a deterioration in your health. There are a couple of different LPA’s to choose between which will differ in suitability for your needs. You should speak to a Solicitor to discuss the options available to you in order to ensure property, financial and welfare issues are accounted for.
Again, if you are in a Partnership or company, you should have a partnership or shareholder agreement in place – especially if you want the partners to have the option to buy your interest and continue the business. This will determine how your share of the business is valued and how your share is to be paid for. These provisions should always be considered at the earliest possible point in your business journey.
We strongly recommend that you contact a solicitor to ensure your affairs are in order and set up to protect your estate accordingly.
Straight talking advice on Wills for Business Owners from Yorkshire Powerhouse
Have you any questions?
Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know: