Preparing a Will can seem daunting enough to most people. Nobody wants to think about what will happen when they die. 

But it’s a fact that if you’re an adult and you have assets you need a Will. Throwing a business into the mix only increases the number of issues that need to be considered. 

Many business owners have enough on their plate running their business leaving little opportunity to give proper thought to writing a Will. Here, we will give you a brief overview of everything you need to do as a business owner to protect your family and business.

Why do you need one? 

If you own all or part of a business and don’t have a Will you run the risk of your business being distributed under the laws of intestacy. As a result, your loved ones will have no say in it even if it doesn’t get left to the persons you would want to inherit. 

This is especially important as a business owner because it’s likely most of your family’s income is tied up in your business and you probably don’t want them to miss out. In brief, with a valid Will you:

  • Control how your estate is distributed 
  • Control who inherits your business 
  • Minimise Inheritance Tax 
  • Prevent disputes and reduce stress on your family 

The importance of forward planning

It’s important to start planning and putting together your will sooner rather than later as a business owner because there’s a lot of planning and decisions to make. The sooner action is taken the better as:

  1. You are not getting any younger (sorry!)
  2. Life changes such as moving house, having a baby, getting married etc may influence your intentions
  3. The death of a loved one is difficult enough without plans being in place to manage what should happen next
  4. You want to ensure your estate is distributed how you want it to be.

As a business owner, writing a Will is more than deciding who will inherit your estate. The first thing you need to decide is whether you are planning to pass your business onto the next generation or sell your business and distribute the proceeds.

If you are planning on passing on your business, you’ll need to consider:

  • If your business structure allows it
  • Who will take over and whether they have the experience and knowledge to do so
  • If it is worth passing on shares to reduce Inheritance Tax

If you are planning on selling your business, you’ll need to consider:

  • Who will manage your business whilst it goes through the sale process?
  • Is there enough money in the business to keep in running until the sale is completed?
  • Does a buyer need to be found and if so, who will find them?
  • Will your business partners be buying your shares, and do they have enough money to do so?

Reducing your Inheritance Tax liability 

Forward planning is also vital when it comes to reducing the Inheritance Tax (IHT) liability. Here’s an overview:

  • Gifts between spouses are free from IHT.
  • There is a basic IHT threshold of £325,000 called the Nil Rate Band.
  • From April 2020, you also have a Residential Nil Rate Band of £175,000.
  • Assets exceeding the combined thresholds will be taxed at 40%
  • Business Property Relief (BPR) is a relief from IHT of 50% or 100% for relevant ‘business property’

Including a discretionary trust in your Will

If you feel uncomfortable leaving business shares to your children and grandchildren, perhaps due to their age or inexperience with finances, you should consider including a discretionary trust in your Will. This basically means making a gift of your shares into a trust upon death rather than outright to the beneficiaries. The benefits of a discretionary trust provision are:

  • It is flexible. You can choose who your trustees are, and it is for them to decide when to give the shares to your beneficiaries. 

NB – It’s a good idea to hire an accountant or solicitor to be a trustee, as they will remain professional and neutral to reduce the changes of any family conflict arising 

  • It maximises Business Property Relief (a relief for Inheritance Tax on business assets)
  • It keeps your options open in relation to forward planning for your business 

If you would like more information or would like to arrange an informal discussion, get in touch with our sister company A4G Legacy. They can guide and support you through the whole process from start to finish, when you need it most.

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Call us on (01474) 853856 and we will put you in contact with one of our advisers, or send us an enquiry by clicking below.

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