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Estate Planning for Business Owners

Protecting your Beneficaries and your Business

Owning a business is time-consuming, your focus is on managing the day to day tasks while growing the business. There’s little time left over to think about anything else, especially what would happen if something were you happen to you. Not having an estate plan in place risks undermining a lifetime of work, jeopardising the livelihood of your family and your business partners.

Which is probably why 30% of business owners have an estate plan, and of those who do 7 out of 10 haven’t kept their plan updated since a life-changing event such as marriage, divorce or the birth of children or grandchildren.

It’s highly likely that a significant portion of you and your family’s wealth is tied up in the business. And although it’s not something we like to think about, securing their future is dependent on you having a substantial estate plan which details what happens to your business if something unfortunate was to happen to you such as an accident, severe illness or death.

An estate plan accomplishes two things; it makes sure that someone you trust takes over your business when you’re no longer able to or if not, it details how exactly it would be wound down. And, as your wishes are clearly outlined, it also simplifies things for your loved ones reducing disruption to theirs, and your customers lives.

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The Wright Wills Way…

Using our knowledge, we can put in place a comprehensive estate plan which outlines what happens to your business and your assets if something were to happen to you.

Our consultants have helped many business owners, so understand the issues and pitfalls when it comes to managing complex affairs and can help navigate around those with ease.

In some cases, estate planning has crossovers into general financial and business planning, such as when it comes to ownership options, in those instances we can sit down with your financial and business advisors to make sure all plans are in alignment.

We offer a personalised service designed to build long-lasting relationships, from your first contact you’ll be handled by one of our specialists, taking the time to understand your particular circumstances and needs, all from the comfort of your own home or office.

10 step checklist for Estate planning for business owners

1. Decide what happens to your business when you pass

The first step in organising your estate plan is deciding what you want to happen to your business if something should happen to you. Wind the business down, pass on ownership to a family member, give your business partners the option to buy your shares, there are many options available to you. However, it’s important to make your wishes clear in your estate plan to avoid unnecessary and costly legal difficulties down the line. Despite this according to PWC’s 2017 Family Business survey, just 13 per cent of family business owners had a succession plan in place. That’s despite the fact that nearly two-thirds of owners would hit retirement age in the next decade.

While your estate planning documents cover who is entitled to parts of your estate upon your death or who should run your business if you’re unable too. A succession plan specifies how you, your family and company prepare for a transition in ownership. For instance, you may want to transfer ownership to one child but don’t want your spouse to lose income from the business, or your other business partners to buy your shares but want to control how this income is distributed to your beneficiaries, you will need to both documents to achieve this. But be mindful of keeping both consistent and in alignment with each other to prevent any confusion.

Once you have this laid out and agreed with all parties involved you can start to plan for the transition of ownership and how the rest of your estate is distributed.

2. Start with a Will

It cannot be stressed how important having a will is otherwise your business will be divided up according to intestacy laws. This means that your shares will pass on to your closest relatives; often split between your spouse and children.

If you don’t have a spouse or children, shares and assets will pass to other relatives such as parents, siblings, nieces or nephew. This could make things difficult as they would be responsible for making business decisions or they’d have to sell their shares. Which would result in any business partners having to buy them out or if not, the business could be sold or even broken up entirely.

So having a will which outlines exactly how you’d like your shares and other assets distributed is vital to reducing additional grief and disruption.

3. Register a Lasting Power of Attorney

Most business owners are aware they need a will, but not many are aware it’s also essential to have a lasting power of attorney in place. This allows you to appoint someone to make decisions on your behalf, called an attorney, if you were to lose mental capacity through an accident or illness. In that situation, your assets such as any bank accounts including joint bank accounts would be frozen, and legislation means that a company director automatically ceases to be a director if they lose their mental capacity.

Having a Lasting Power of Attorney in place means your attorney can make decisions which affect your business and access funds your family needs. Without one, an application has to be made to the courts to appoint a deputy, this can take months, and additional cost in legal fees.

4. Consider setting up trusts

Beyond the basics, Trusts are a useful tool to navigate some of the issues above. For instance, as we discussed, you may not want your beneficiaries to inherit business interests directly, but if you put your business interests into a trust, they can still benefit from the shares (i.e. still receive the dividend income) but won’t have any involvement in the day to day running of the business. A trust is also useful if you become ill, incapacitated, or even retire, as you can pass control of the company to the trustees (who could be fellow business owners) and your company will continue to earn money for you and your family.

5. Work out Tax efficiencies

Unquoted shares in your business can receive up to 100% relief from Inheritance Tax if they qualify for Business Property Relief. Structuring your will correctly and or placing your shares in a trust can mean your beneficiaries avoid paying tax on those shares. We can work with your financial advisor to develop an estate plan which takes advantage of these tax planning opportunities.

6. Sort out issues within family-owned businesses

Once you’ve sorted out your succession plan, it’s time to address any issues this might cause in a family-owned business. It’s not uncommon for one child to want to take over the family business whereas others have no interest in doing so. There’s also the problem of how to make sure your spouse is still supported if ownership is passed to your children. And the further issue of how to keep business assets within the bloodline if you wish. Ordinarily, if you give all assets to one child, those will be jointly own between them, and any spouse which would mean other children and their grandchildren won’t benefit.

Or it may be the case that none of your family wants to be involved in the business, but you’d still want them to receive an income from it.

Whatever the circumstances we can create an estate plan which helps you smoothly transition ownership of your family business.

7. cross option agreements

As discussed above, managing what happens to your shares when there are multi-owners can be complicated. One way to navigate this is to use a cross option agreement, this is an agreement between all shareholders of a private limited company. Each shareholder gives the other shareholders the right to buy their shares in the event of their death. The sale can be funded by taking out life insurance policies for the other option holders.

This means business partners can avoid complications through having unwanted new shareholders and also provide your beneficiaries with an income at the same time.

8. Talk to those involved

How your estate is distributed and especially what you want to happen to your business can be tricky conversations to have. But it’s essential to talk to the various parties involved throughout the process to prevent any difficulties and conflict after you pass. For instance, you should find out what involvement if any, your family have in your business.

Once everything is in place, you should sit down with your loved ones, and they understand exactly what the plan is. This helps them plan ahead for their future and can make life decisions accordingly.

9. Organise your records

An often overlooked but important element of estate planning is making sure your important documents and files are organised and easily accessible. Let your family and partners know how to access them in case your unexpected passing should occur. Particularly documents such as your business plan, financial statements (personal and business-related), insurance policies and anything else significant relating to your business and estate.

10. keep your plan updated

Finally, it goes without saying that you should keep your plan updated to make sure it reflects how your wishes and also stay abreast of legislation changes.

A new marriage or birth of grandchildren could change how you want your estate divided or what happens to your business. And inheritance laws change all the time, making sure your plan is updated will make sure you can take advantage of those changes. Whatever the change, we can act as trusted advisors, updating and adapting your plan as often as necessary.

Contact us today to start putting together your estate plan