If your client is a business owner they will be considering more than the distribution of their personal estate when preparing their Will. They will also be looking to make provision for their business and optimising tax planning opportunities in the process.
A frequent question that may be asked by a business owner is “will my business have to be sold when I die?”. The answer depends on a number of factors but a Will can help to provide the solution.
If a business owner dies intestate then the beneficiaries of their estate are dictated by legislation. This also means that the person
entitled to act in administering the estate, and therefore the business, is also dictated in this way. If the deceased was the sole
proprietor of the business then the administrator’s powers will be limited to bringing the business to a close or sale in order to satisfy the legacies determined under the intestacy rules regardless of the deceased’s wishes. It is also vital to point out that the administrator may be the wrong person to deal with the business as they may not have the knowledge, or interest, to deal with it efficiently and maximise the assets.
A Will can appoint a business executor and provide sufficiently wide powers for the executor to deal with the business in accordance with the testator’s wishes. It also gives an opportunity to optimise tax allowances and reliefs available to the client personally and in respect of the
business interests. Key questions that should be asked in relation to the business should include the following:
• If the estate is above the Nil Rate Band what provisions have been made to meet the tax liability?
• Who owns the business premises; the company or the individual?
• Do other shareholders have preemption rights and how will such a purchase be funded?
• How is the value of the business to be calculated for IHT purposes?
• Who are the other shareholders and what agreements are in place with them?
The shareholders agreement and company Articles of Association will provide the answers to some of these questions and the Will written should compliment the existing arrangements.
Careful consideration should be given in respect of the distribution of assets qualifying for Business Property Relief (BPR) so that such assets are not passed to exempt beneficiaries, effectively wasting the relief.
Additional points which should be considered are that any BPR will be lost if your client has contracted to sell the business prior to the date of death.
Unincorporated business may wish to consider incorporation as the business grows which will effect available reliefs and should prompt a Will review.
