Although succession planning for the future may not be at the forefront of your mind, having a Will can certainly bring comfort in the knowledge that your assets will pass in accordance with your specific wishes.
Without a Will, your personal items and financial assets will be distributed in accordance with the intestacy rules that are outlined under English and Welsh law.
1. The importance of having a Will in place
For owners of family owned businesses, having a Will in place is even more important. It ensures that the future of the business is in safe hands and to provide for those who will not benefit from the business. Discussions need to be had around:
- who should take over the business
- whether the intended successors are in a position to inherit significant wealth, or whether some form of protection is required, such as trusts
- how the distinction is to be drawn between ownership and management roles
- whether the business is to be passed down to just those who are currently involved in the business and receive an income or dividend or whether others are to be brought in
- whether there are assets available outside of the business to allocate to other family members if they are not to be included in the business going forward but are to inherit
- what should be done if there is no suitable successor
- tax, including how to pass on the business tax efficiently and whether Business Property Relief will be available and will be utilised fully to reduce Inheritance Tax.
These considerations will take some careful thought, and Birketts can advise on all of the options and guide you through the process of putting in place a succession plan to enable the company’s success to continue.
The Private Client team works alongside the Corporate team to ensure company documents permit the intended succession of the business.
2. Lasting Powers of Attorney
A second key consideration for business owners is who will make business decisions, should they become unable to make such decisions for themselves. A Lasting Power of Attorney (LPA) can come into play if an individual loses capacity either temporarily or permanently as a result of an accident or medical condition, or, whilst the individual still has capacity but needs documents signing on their behalf, for example if they are abroad.
An LPA enables a person who has mental capacity (the donor) to choose another individual or individuals they trust (the attorneys) to make financial decisions on their behalf. It is possible to create two distinct LPAs, appointing one set of attorneys to manage personal assets and another set to manage business assets, as it might not be appropriate for the same people to make both personal and business decisions.
LPAs are important documents as they ensure the continuity in the management of the business without unnecessary delay. The assumption that family members or even business colleagues will gain automatic authority to make such decisions could leave the business exposed to risk.
It is worth noting that attorneys cannot be appointed once a person has already lost mental capacity. This makes registering an LPA well in advance essential in order to avoid having to make applications to court for the alternative, which is a deputyship order, and which could be refused, is likely to give limited powers compared with an LPA, and is more costly and timely.
If you would like to discuss Wills and LPAs to ensure the smooth succession of your business, please get in touch with a member of our team.
This article is from the August 2020 edition of The Family Business, our newsletter for those working in family owned businesses. To download the latest issue, please visit the newsletter section of our website. Law covered as at August 2020.
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The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at August 2020.