We all know that it can be upsetting when a member of your family dies but if that person dies without leaving a Will and was also running the family business then this can have disastrous consequences for the business. In those circumstances and without forward planning, family wealth could easily be eroded. Good planning goes far beyond the presence of a simple Will and requires careful consideration and monitoring.
It is all very well to encourage or coach a younger family member to take over the business when you die but these plans need to be set down in writing. Statistics show that only about one third of the population have valid and up to date Wills. Remember you will not be around to tell anyone what you intended. If your wishes are not carefully thought out and clearly set out in writing then your heirs may find themselves inheriting a business that they know nothing about nor are interested in.
The child working in the family business and who you want to inherit the business may find themselves having to raise funds to purchase their siblings’ interest. Your intentions therefore need to be well thought through and set out clearly in a valid and up to date Will.
If the value of your estate on death is likely to attract Inheritance Tax then you must consider overall tax planning. Whilst some privately owned businesses may be exempt from Inheritance Tax it is always prudent to tax plan and this is often triggered at a Will and Power of Attorney review stage. Tax planning may include amongst other things taking out simple life assurance to meet the potential Inheritance Tax liability, the use of Trusts or the use of your annual gift allowance to reduce the overall value of your estate. A shareholder or partnership agreement may deal with the business however it is important to consider the overall asset position and the interaction of the rules which apply to your various assets.
Inheritance Tax planning requires constant review. There is no quick fix.
The owner of a family business and especially sole traders should also consider making arrangements for a Power of attorney. This is an authority given to an individual or individuals to deal with certain aspects of your affairs and it can be restricted to your business affairs. The Power of Attorney can become effective if the granter becomes incapacitated and can be cancelled when the granter is again able to run the business. That document does however need to be signed when the granter is fit and able to give instructions.
Simple but effective planning coupled with regular reviews can ensure your intentions are met. It can ensure the continuity of the business and that family wealth remains intact.
For more information and advice on these topics please contact the firms Private Client Team