Essential Estate Planning for Company Owners
In the early days of growing your business – or even the middle days – succession planning might be way down your list of priorities. But if your co-founder or partner dies intestate, it can have catastrophic effects on your company.
At Just Wills and Legal Services we have the tools to prepare your business for any eventuality.
What happens if my business partner dies intestate?
If your business partner dies without a Will, then the laws of intestacy come into effect and their share of the business assets (including physical assets) will be distributed amongst their closest family, starting with their children and spouse.
They may then be legally obliged to sell the estate within 12 months, to satisfy Inheritance Tax obligations. They have no obligation to sell it to you.
You then may find yourself suddenly at the mercy of business partners who are unable or unwilling to get to grips with the business at this time of extreme grief, and are equally unwilling to allow you to take charge and carry on as normal.
Plus the delay in gaining probate and executing the estate distribution that can come with an intestacy can lead to long delays in deciding who is responsible for your partner’s shares. With no probate in place, this can lead to complications in calling in debtors, if those debts are deemed to be owed to you jointly.
And with no plan in place, your business partnership automatically dissolves on death, leaving you with no recourse!
What happens if my business partner makes a simple Will?
Many people make simple Wills, often before they make commitments like getting married, having children – or starting a business – and don’t get around to changing them. If your business partner has entered marriage since making their Will, that Will is now invalid and the rules of intestacy apply.
If they have made a simple Will leaving everything to their children, parents or spouse, then you face a similar scenario to that outlined above.
What can we do to avoid problems?
Time for you and your business partner(s) to have a full and frank discussion about the importance of Estate Planning to your business.
There are a number of options for you and your business partner to consider in the drafting of your Estate Plans:
A formal Partnership Agreement can include a plan for what will happen if one of you should die. It would normally include provision for you to buy out your partner’s share of the business from their Estate in the event of their death.
It may be that your partner’s family are involved in the business and would be happy either to continue working with you in the event of an unexpected death, or to trust you to carry on.
However, leaving a share of the business directly to family can lead to an increased tax burden as the Business Property Relief allowance is swallowed up by a surviving spouse’s Inheritance Tax allowance, so it is more effective to form a Family Trust to hold your partner’s (or indeed, your!) share of the business, so that they get the benefit without the burden.
Lasting Power of Attorney
But then what if your business partner doesn’t die, but is mentally incapacitated by sudden injury or illness? A Lasting Power of Attorney is a lifetime plan that will enable your business to continue in any eventuality, without recourse to a massively expensive and lengthy legal process.
What should we do next?
As Richard Branson likes to say, he’s not a successful businessman because he knows how to do everything, but because he brings in the right people. He trusts the experts to do what they do best.
Your next step should be to contact the Will Writing and Estate Planning experts at Just Wills and Legal Services. We have a network of qualified and experienced legal experts across the UK who can help you plan for the future of your business, your family – and your legacy.
If you’d like to book a free consultation with one of our legal experts, book online or call 01342 477 102 and quote ‘Estate Planning for Company Owners‘.
This article is for general information only and does not constitute legal advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.