As a business owner, preparing for the future really matters. To ensure business continuity and to avoid years of hard work going to waste, future financial planning should be a top priority.
Without a Will in place at the time of your death, the transfer of ownership of your business and/or its assets is outside of your control. This could lead to someone you would not have chosen taking over your business or it could lead to multiple people inheriting and leading to a conflict. Disputes could arise if you fail to clearly set out what should happen to the business, perhaps even leading to a rushed sale.
Owning a business or an interest in a business adds an additional layer of complexity to writing a Will. Writing a Will can often be seen as a tool just for individuals to distribute personal wealth and assets upon death. But regardless of your circumstances, a Will provides the certainty that your wishes will be honoured after your death, including desires surrounding the future of your business. You wouldn’t leave business decisions to chance during your lifetime and planning for what happens to your business after your death requires the same careful planning.
Writing a Will (and reviewing it on a regular basis) should form part of a business owner’s succession planning. A business owner’s Will must consider how the value of the business can be preserved and transferred to the intended beneficiaries. A Will has to take the individual business owner’s objectives into account whether that be that they envision the business being passed down to future generations or whether they see the business as an investment that will be sold upon death.
A Will can grant an executor powers so that they can continue running your business even before obtaining a Grant of Probate. This is important to protect the value of the business. Choosing the right executors is extremely important especially when there is a business involved. Business assets can be complex. It may therefore be advisable to appoint a professional executor such as a solicitor alongside someone who knows your business inside out.
When preparing a Will you may wish to consider obtaining a valuation of your business in order to assist you with apportioning value between beneficiaries in your Will. It would also assist with initial inheritance tax planning.
Something else to consider is how the business is owned. Are assets owned by you personally or by the business?
If you own a business and are considering making a Will, it is likely that you are going to reflect upon what would happen to the business if you were to die unexpectedly, whether the business would have to be sold or whether you can leave your business or business interest to your chosen beneficiaries. Individual circumstances and how you operate your business will dictate this. When writing a Will, you will need to think about what kind of business you own and how this will pass on death:
1. Sole Trader
If you run your business as a sole trader, the actual business will cease upon your death. You cannot physically transfer the business in your Will. The business assets however will pass to your executors to deal with. Your executors may need to sell business assets to settle any debts or taxes for which your estate is liable. After debts are settled, the business assets or sale proceeds are distributed in accordance with your Will. If you do not leave a Will, the rules of intestacy take effect and these may not be what you think.
If as a sole trader you had envisaged the business carrying on after your death, planning ahead is crucial. You must ensure your Will distributes the business assets to someone with the resources, skills and expertise to ensure business continuity.
2. Partnership
If you are running your business as a partnership, it is likely that you have a Partnership Agreement in place. A Partnership Agreement usually provides the legal structure for what happens upon the death of a partner. Without such an agreement in place, the partnership would dissolve upon your death (or upon the death of any partner) and your share of the capital and income passes to your executors to hold on the terms of your Will. It is important that you are familiar with the terms of your Partnership Agreement before making your Will, to ensure the two do not conflict.
In your will you can only pass on your financial interest in a partnership and not your rights to your position as partner.
3. Private Limited Company
The legal identity of a private limited company is distinct from the shareholders owning it. Shareholder rights are agreed by the company’s Articles of Association, including rights that the shareholders have in the disposal of their shares upon death. The Articles would take precedence over a conflicting provision in your Will, but to avoid any conflict after your death, it is still advisable to have a Will, made in conjunction with the Articles.
Inheritance Tax Considerations When Writing Your Will
When writing a Will as a business owner, it is particularly important to consider any inheritance tax that will be payable upon your death. It is possible to carefully structure your Will to ensure you have maximised available inheritance tax reliefs, including Business Relief to minimise tax due upon death. This is particularly relevant at the moment due to upcoming changes in the law surrounding Business Relief. Business assets can qualify for Business Relief at either 100% or 50%. It is important to consider how your business is structured to maximise this relief in your Will (for example, ensuring the business is not too ‘cash heavy’). A common mistake to avoid making when writing a Will is to leave your business assets via a very simple Will. It is possible that you could be creating avoidable inheritance tax bills either upon your death or the future death of your spouse.
Considering Trusts in Your Will
One final thing to consider when making a Will as a business owner is the inclusion of a trust. A discretionary trust within the Will gives flexibility, allowing decisions to be made at the time of your death when the structure of your business and laws on inheritance tax etc may look very different. When including a discretionary trust in your Will, it is sensible to prepare a detailed letter of wishes for your trustees, explaining how you see the future for your business after your death. Whilst non-binding upon your trustees, it provides them with guidance, including how you see capital and income being dealt with and apportioned between a group of potential beneficiaries.
How Can We Help?
A carefully drafted Will is one of the most important tools a business owner can have. It ensures clarity, protects your business, supports your loved ones, and enables thoughtful tax planning. It also ensures that your business continues, or is wound down, in the way you intend.
If you need assistance with writing your Will, please contact Hannah Thomas and the wider Wills and Probate team to make an appointment. You can do this via email, or by calling 01633 492008.
