Business owners are particularly vulnerable if they don’t make a Will because the laws of intestacy (dying without a Will) could, in certain circumstances, mean the ruin of the business resulting in loss of income and security for family left behind.
Intestacy Laws
In Britain, all your estate and possessions, both business and personal, are subject to intestacy laws if you don’t have a Will.
These laws state that anything you own will be passed to your closest blood relative, and if no close relations can be found, the estate will go to the treasury.
The risks to business include the passing of shares to non-professional individuals who may have no understanding of how the business operates. Under intestacy rules, business partners have no right of inheritance, so could find the majority share moves beyond their control. Shares could pass to children too young to handle business matters themselves, or to relatives you either don’t know well or don’t get on with.
Making a Will allows you to leave directions regarding who inherits and takes over your business interests.
Avoid Complications Regarding Tax
If inheritance tax is due on business assets you leave, providing a Will allows beneficiaries to prepare, plan and make appropriate provisions. In the event of you not having a Will, unexpected bills and responsibilities can have far-reaching consequences both for those on whom the responsibility falls and on business partners who’s future could be affected.
Depending on the value and size of the business, inheritance tax may be due. It is payable when the business passes to (or is sold by) whoever inherits it. When combined with other assets such as property, the inheritance tax threshold of £325,000 is quickly reached. With the rate being 40% on the sum above the threshold, this can run up a bill of many thousands of pounds which has to be paid straight after death.
Safeguard Your Business Interests
In a worst-case scenario, dying without a Will would see your business assets pass to the treasury. This could be particularly catastrophic if you are the majority shareholder. By making a Will you can leave clear directions over future ownership of your business interests, and this includes not accidentally leaving a spouse or children in the position of needing to take over running the business – unless they are qualified and have a wish to do so.
In family businesses, having family members take over is often desirable but even so, not having a Will could mean the business ends up in the wrong family hands. You may for example want to give your business partner the first option to buy the shares/business from your estate, or want to place it in the open market for sale.
Making a Will
In many respects a business Will is no different to any other Will, in that you take control of directing what happens to your estate, assets and interests after you die.
In the case of relatively uncomplicated businesses, the intention could be to allow the business to cease operating when the founder or owner dies.
For larger businesses, the situation becomes more complex and professional advice should be sought so every eventuality is addressed. Things to consider include who will take over your direct role in the business, as well as who would inherit any shares or income derived from the business.
Prepare for the Future
Many business owners have a clear vision of how the business will operate in the future, but fail to consider what happens to these plans when they die.
In thinking about making a Will to protect your business after you die, you can also think about preparing inheritors to take over. If they need to learn new skills in order to carry out inherited responsibilities, it’s as well to begin that process as soon as the beneficiary is decided on.
Business issues can be complex, but by thinking about, planning, and preparing a Will, owners can not only safeguard the future of their family income or capital assets, but also secure the business for future growth and success.
About the Author: Drew writes for Unicef UK Legacies. Find out more information about leaving a legacy gift in your will on their website.
Photo credit: Ken Mayer / Flickr
