Who Will Inherit Your Business?

January 30, 2024

Who Will Inherit Your Business?

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By Nick O’Sullivan

According to research by insurance company Royal London, 54% of adults in the UK do not have a Will – and it is likely that a significant number of those Wills that are in place are out of date or inadequate.

The importance of a Will for business owners

It is particularly important for business owners to consider who they want to inherit their shares or business interests (and how they are inherited). A well-written Will can help make sure those shares/interests 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 be sold off quickly and for a low price.

A suitably drafted Business Will can also lead to significant savings regarding Inheritance Tax by taking advantage of Business Property Relief. By gifting assets in a Will into a Business Trust a surviving spouse and children can make use of the assets during their lifetime and are not subject to Inheritance Tax on the survivor’s eventual death.

Even if the Business Asset is disposed of, a well-managed Business Trust can mean little or no Inheritance Tax will be payable. The Business Trust can be used in conjunction with a Cross Option Agreement and other tax or estate planning trusts in a Will.

What is a Business Lasting Power of Attorney (LPA)?

A Business LPA is a type of Financial LPA that deals specifically with someone’s interests in a particular business separately from general financial decisions should he or she lose capacity.

While many people have a Financial LPA in place, these often appoint family members who may not have the knowledge or skills required to deal with business interests.

A Business LPA requires careful consideration and drafting. It is usually specific to an individual’s role in a business (interests in multiple businesses would usually lead to separate LPAs for each of those interests).

A Business LPA also:

• enables both the appointment of suitable attorneys AND the setting out of detailed, legally binding instructions to control the extent of their powers/role
• can include non-binding preferences to help attorneys exercise discretion in a way that meets the donor’s wishes
• appoints attorneys to make management decisions, not to take over their job and can allow them to instruct existing employees to perform key tasks or employ new people if there is a skills shortage

Without carefully drafted Business Wills and LPAs in place the potential for damage to a business is not to be underestimated should a business owner die or lose capacity (even temporarily), meaning that future generations may not benefit (or not benefit as much) from these.

If you would like to discuss your options for putting a Business Will or LPA in place, contact Nick O’Sullivan on 029 2003 0562 or at nosullivan@darwingray.com.