Planning points for business owners – on death and during lifetime

Everyone should consider what their wishes are for their assets on their death and seek advice on a will, but for business owners, there are particular issues to consider.

If a business owner fails to make a will, and so dies intestate, they won’t be able to ensure that the value of the business interest (whether sole trader, partner or shareholder) passes to the intended recipient. In a will, steps can be taken to ensure that the ownership and control passes to the business co-owners. Is it appropriate for a co-owner’s spouse or children to have a seat at the table and make decisions about the business? Or should the co-owners buy the interest out so the family, either directly or through a trust, receives the value but not the responsibility?

The choice of executors is crucial as, if there is a cross option agreement in place for shareholders or equivalent in the partnership agreement, they will be the ones negotiating for the family. They have an even more important role if there is no agreement with the co-owners, as they will be negotiating all aspects with them, rather than ‘just’ navigating the agreed purchase process. If there is to be no sale of the business interest to co-owners, the executors should have the relevant business skills to be able to run the business on a short, medium or long term basis.

In the case of a partnership, unless there is agreement to the contrary in a partnership agreement, a partnership will be dissolved fully by the death of a partner, so the partnership would come to an end. This aspect should be considered ahead of the death of a partner.

Although a partner may dispose of their partnership share by their will, a partnership agreement provision will prevail if it differs from the will’s provisions. It is always therefore best for a partnership agreement and the will provision to be considered in tandem.

With a shareholding, the death provisions in any shareholders’ agreement (or in the memorandum and articles of association) need to be considered so that it can be checked that the will provisions can take place. Are there any pre-emption rights so co-shareholders can opt to buy the deceased’s shares and avoid family members suddenly running the business with them? Who is it best to leave company shares to in the will in any event?

Business owners may well have sufficient wealth to mean inheritance tax will be of real concern. Detailed advice should be taken so the particular circumstances and priorities of each individual can be considered and tailored advice received. Should the home go into a trust for the surviving spouse to preserve the asset for children from a first marriage in the case of blended families, or to limit the amount spent on the survivor’s care and preserve an inheritance for the children?

Trusts should be considered, either of business assets or other assets, as they can protect those assets if future generations suffer financial or matrimonial difficulties, or if the

beneficiaries are not mature and responsible enough to receive large sums of money.

Trusts can also be used to benefit future generations by potentially by-passing children to benefit grandchildren or further generations. Trusts can run for a maximum of 125 years so can look after several generations.

Business owners should think about not just what they would like to happen if they die, but very importantly, what should happen if they lose capacity before death. Powers of attorney are a valuable way of ensuring that, in such a sad case, the business can still be run and personal finances managed, if an individual loses capacity. Without a power of attorney, an application would need to be made to the Court of Protection for a deputy to be appointed which can take many months and cost far more than a power of attorney. Meanwhile, what happens to the business?

Business owners may wish to appoint family members for managing their personal finances and health decisions, but different people under a business power of attorney to run their business, who have the necessary business skills and knowledge to do this.

Everyone, and especially business owners, should obtain detailed advice from a knowledgeable qualified adviser on their particular circumstances so they plan for the future in a coherent comprehensive way.