Why do business owners need a Will?

Our new clients often tell us they’ve scrawled ‘Make my Will’ on their to-do list but it’s been languishing there for months - in some cases years.

Juggling home life and running a business make it difficult to prioritise something that you might consider to be a morbid topic. Superstitions and taboos stop us taking action. Living now is the priority. I’ll do it when I’ve retired… next year… after the wedding… when I come back from holiday…

If you are in business with other people, you should consider your estate plans together. If one of your co-business owners were to die unexpectedly, your livelihood and the livelihood of the people who depend on you could be at risk.

What is a business Will?

Clients occasionally ask us if they need to make a separate Will for their business. You can have more than one valid Will in England & Wales, each of which deals with different parts of your estate, but we’d say this was unnecessary and could cause future issues and uncertainty.

If you make a second Will (and your later Will does not include a clause revoking the previous Will), your personal representatives will have to apply to the court for a judgment on which Will - if any - is valid. It’s sensible to take professional advice if you intend to change an existing Will.

If you’re in business, your Will should include your business assets, and you can appoint separate business trustees too if needed.

Appointing Executors

Your Will appoints executors and trustees. It’s their role to ensure the running of the business if you were to die prematurely. It’s likely to be important that operations continue to be run by someone with appropriate experience and skill. You may want the business to continue to be run by your co-owners; or pass to those people who are involved, have knowledge of the business and share the same vision.

A word here for the benefit of Lasting Powers of Attorney. Your Will deals with everything when you pass on, but not if you’re still around but unable to make decisions. Business owners should also consider making a Lasting Power of Attorney for Property and Financial Affairs for business, with an appropriate person stepping in temporarily or permanently if an accident or illness means you are unable to work.

Who benefits from your success?

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). If you die without a Will, the intestacy rules set out who should inherit, with some surprising results. For example, if you are married or in a civil partnership, your personal wealth is greater than £270,000 and you don’t get round to making your Will, your life partner may not inherit all of your assets.

Business property relief

Your Will can be structured to make the most of business property relief and be as tax efficient as possible. Business property relief could mean your business passes 100% inheritance tax free. This valuable relief can be lost without proper planning.

Risks

Whether you are a sole trader, partner, director or shareholder of a company without a Will, there are some important risks to consider. Dying intestate could mean that the business:

• falls on your family, leaving them to handle the administration of your estate when they are dealing with personal loss

• risks delays, as no-one has authority to deal with the business until a grant of probate has been obtained from the Court, which can have a detrimental effect on the business

• is owned by your spouse or family members leaving the remaining business owners with conflicts and uncertainty

• is inherited by young children, which may make it extremely difficult for the business to continue

• has to be sold, if the beneficiaries don’t want to carry on running it

• risks being devalued and sold at a lower price than anticipated. This can happen, especially if there are pressures to sell quickly and the business is not being well-managed during the period leading to the sale.

Peace of mind

When reviewing your Will, consider the structure of your business and the relevant business documents at the same time. Make sure that you know what would happen to your share of the business on your death and consider making changes to reflect your wishes.

If you are in business with others, either in 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 any of them die prematurely or unexpectedly.

If you’re not a limited company, but you and a colleague work together in partnership, formalising your partnership in a legal agreement is essential. This will ensure your partners have the option to buy your interest and continue the business. A partnership ends on the death of one of the partners unless you have a formal partnership agreement.

The articles of association for limited companies may state how business shares pass on death. It’s important that company documentation ties in with your Will.

Next steps

To find out more about making a Will that includes your business use our contact form to get in touch. We’ll guide you through the options to make sure everything you’ve worked so hard benefits the people you’ve chosen, in a tax efficient way.