Making a Will…and getting it right!
Making a Will to ensure that your business runs smoothly without you is something all too often overlooked.
Approximately two thirds of people die without making a Will (intestate), yet many are unaware of what actually happens to their assets as a consequence. The rules of intestacy apply in such cases and strictly govern the amounts which go to the surviving spouse and any children. For example, where there is a surviving spouse and children, the spouse will inherit up to £250,000 and all personal possessions. The remainder of the estate is split into two halves, with 50% going to the children in equal shares while the spouse gets the other 50%.
Key points to remember are:
- Unmarried couples do not benefit from each other’s estate under the intestacy rules, regardless of the length of time they have been together.
- If you are separated but still married, your spouse will still be the principal beneficiary of your estate.
- If you have children under 18, a Will helps to ensure that your wishes regarding your children are honoured.
- A Will enables you to choose your executors (the people responsible for collecting and distributing assets of your estate). Whether or not your estate includes business assets, it is essential to appoint people whom you trust. It is wise to choose those with some financial acumen.
The rules covering what you can do with your business depend largely upon the form that the business takes. A sole trader may, for example, consider passing on the business to one of his or her employees or a family member. A well drafted Will can include terms such as an option for that person to purchase the business.
Unless you have a Partnership Agreement in place, your partnership business would be automatically dissolved on your death and the business wound up with your share of the income and capital passing to your estate. This does not prevent the other partners from continuing the business but they may well have to sell assets in order to pay out your share to your estate. It is therefore worthwhile considering taking out insurance to provide for the event of having to pay out on a partner’s death, having an agreement in place to determine what is to happen to the partnership and making a Will to gift your interest in the business.
A limited company is a separate legal entity from those who run it and the rights of the shareholders are encompassed by the company’s Articles of Association. You need to consult the Articles as to whether they are any restrictions on the transfer of shares as the Articles would supersede any conflicting clauses in your Will.
Making a Will can sometimes avoid an unnecessary Inheritance Tax bill on death. For example, for many people with business assets Business Property Relief is available, which reduces the value of that person's estate for Inheritance Tax purposes. Planning what will happen after your day may seem depressing but avoiding the issues could be costly and complicated for your successors.
For further information on inheritance planning for business owners, contact Emma Baker at Burnetts on 01228 552222.
About the author
Emma is an Associate Solicitor in the Wills, Probate & Trusts team.
Published: Wednesday 5th April 2017
Categorised: Wills, Probate & Trusts