Owning a business, a business interest, or shares has a real impact on how you should write your Will and plan your estate.
Our Tax, Trust & Estate solicitors are highly experienced in advising business owners on issues such as Inheritance Tax, succession planning, and Will writing. Here are our answers to some of the questions that we get asked the most.
If you have any other questions or would like to know more about how we can help you with your Will, call us on 0370 1500 100 or contact us online today.
Why is it important for business owners or private company owners to have a Will?
It’s important to carefully consider who you want to inherit your shares or business interest. A well-written Will can help you make sure they pass on to the right person.
Without a Will, your business or your shareholding could pass to:
- Someone who has no interest in running it
- Someone without the skills or experience to run it properly
- Multiple people in conflict about how the business should be run.
In any of these cases, the business could lose value due to mismanagement. It might also simply be sold off quickly at a bad price.
You may also have strong personal feelings about who should inherit your business or shares. Many business owners are keen for their family to be involved with their business, or you may want to pass it on to a trusted employee. In the latter case, your Will may not be the most tax efficient solution.
You may want to leave your family a sum of money equal to the value of your business or your company shares, rather than the business or shares themselves. We can achieve that by putting in place a structure including your Will, a life assurance policy and other documents.
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I’m a sole trader – what will happen to my business when I die?
Your sole trader business will end when you die, but your business assets will pass to the executors of your Will as part of your estate. If you don’t have a Will, your estate will instead come under the control of the administrators of your estate.
The executors or administrators need to pay any debts or taxes for which your estate is liable. They may need to sell some of your business assets to do this.
The executors will then distribute any remaining property or assets (including any business assets or the sale proceeds from them) in accordance with the Will. If haven’t left a Will, the administrators will distribute your net estate according to the intestacy rules.
It will be difficult for someone to restart or continue your business if you don’t make a Will. If you want to give someone the opportunity to run your business once you’re gone, it’s essential to plan ahead.
Contact us today to find out how our solicitors can help.
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I’m in a business partnership – what will happen to my interest when I die?
First of all, your interest will pass to the executors of your Will. If you don’t have a Will, it’ll pass to the administrators of your estate.
Exactly how the executors or administrators handle your interest will depend on the specifics of your partnership agreement. For example:
- The other partners may have the option to buy your interest before your executors sell or transfer it to anyone else
- The executors might also have the right to require the other partners to buy your interest, but this unusual and may have unwanted tax consequences.
The executors may also need to sell your interest to pay any debts or taxes that your estate has.
The executors will then pass on your interest – or any sales proceeds – in line with your Will. If you’ve not left a Will, the administrators will pass them on according to the intestacy rules.
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What do I need to think about when making a Will?
If you own an interest in a partnership, you need to make sure that it has a properly drafted partnership agreement. This agreement can affect what happens to your interest when you die, so it is important to be familiar with the terms before making your Will.
Passing on shares can be restricted by the company’s articles of association. You need to check that they don’t conflict with the terms you put into your Will. In some cases, you may be able to change the articles of association so you can pass on your shares as you want.
More generally, it’s important to consider whether or not someone would want to get involved with a business before leaving it to them. If they are likely to just sell it or pass it on to someone else, there might be more efficient ways to pass the value on.
In many cases, the best structure for your Will would be to leave your shares or partnership interest to a trust which includes a wide class of family members and perhaps others. That would be tax efficient and flexible enough to handle external factors such as:
- The terms of a partnership agreement or articles of association
- The age and ability of intended recipients
- The value and nature of the rest of your estate.
You may also want to think about your fellow partners or shareholders - life assurance policies might be a good idea to protect your interests and theirs.
Inheritance Tax is another important consideration – see ‘Can you help with Inheritance Tax?’ below for more information.
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Can I pass on my shares or business interests to a family member?
Whether or not you can pass on shares or business interests will depend on the business’ partnership agreement or articles of association. If there is a shareholders’ agreement, this may also have an impact.
It’s important to check these documents before you make a Will or make any promises to an intended recipient.
You should also think about how involved your family member will want to be in the business before making your Will. This will determine the best way to pass the business on.
One option is to set up a trust to hold shares so your family can benefit without being directly involved. Read more about our expertise with Trusts
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Can I leave instructions for how to run my business?
Someone who inherits shares in a company will have some control over wider issues, but day-to-day decision-making of companies or partnerships will stay with the surviving directors or partners.
The best way to influence the future management of your business is to appoint other directors while you’re still alive. This is a large part of the succession planning process.
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Can you help with Inheritance Tax?
Passing on a business in your Will can mean that your estate has to pay a substantial amount of Inheritance Tax. In some cases, your executors may even have to sell business assets, shares or interests in order to pay that Inheritance Tax.
In other cases, your business interests might be eligible for Inheritance Tax relief.
This means it’s important to plan how your estate will manage Inheritance Tax in advance. We can help you make any available tax relief and make sure that your business is passed on as you wish.
Read more about inheritance tax planning
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Contact Us Today
Our solicitors are highly experienced with helping business owners plan their Wills and estates. Call us on 0370 1500 100 or contact us online to find out more about what we can do for you.