Client Guide: Protecting your business - how a Will can help
By making a Will you can eliminate problems and make sure that your business continues running smoothly.
Below we list some of the main considerations:
- Who will continue to run your business or take decisions in relation to it on your death? If you die without a Will this will be your closest relatives and they may not be the most experienced or suitable people to do this.
- If you are the sole proprietor the relatives acting as administrators of your estate will not have power to continue to run your business indefinitely but only to keep it going long enough to sell it. By making a Will you can give your executors all the powers they need to continue running it as you had been doing.
- If you die intestate your business may have to be sold, in order to pay your relatives the amount which legislation says they are due from your estate, even though you may have wanted your business to pass to particular family members.
- Your administrators or executors are not entitled to be paid for acting as a director or employee of your company. Your Will can give express power that they be paid like other directors. This would enable you to appoint a co-director as executor.
- An executor or administrator has a duty to enquire into the running of your company. He might well be concerned to see the business adopt a more cautious approach than you would think appropriate. By making a Will you can give him full power to take appropriate decisions.
- Does your partnership agreement or agreement with your co-shareholders deal with what is to happen on your death properly? Does it preserve your inheritance tax business relief?
- If you have just sold your business or the share in your company you are no longer able to claim business property relief as an exemption from Inheritance Tax (IHT). Your assets may now take you over the threshold where tax becomes due. This could mean 40% tax will be charged on anything over £325,000 (2014/2015 figures). A properly drafted Will can provide effective IHT planning.
- Have you maximised your reliefs from IHT? Business assets may be exempt. Consider leaving non-business assets to your spouse, who is exempt from IHT, and business assets to non-exempt beneficiaries, such as your children or into a discretionary trust.
If you own land and/or buildings in your own name but make them available for the business to use, your Will needs to provide for this to continue, otherwise your partner(s) could be left with premises belonging to your beneficiaries who want to sell.
You should also consider having a lasting power of attorney for use if, for example, you become mentally incapable, physically disabled or spend time abroad. By appointing an attorney, documents can be signed on your behalf and the attorney can continue running your business in your absence. It can also cover your personal affairs.