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By Hester Mills

Nov 24th, 2020

Wills, Lasting Powers of Attorney and succession planning for those with business interests

COVID-19 and the uncertainty it is causing presents unique problems for business owners. Ensuring your affairs are in order and keeping people fit and healthy becomes even more important than normal. For people who run businesses with an international dimension and need to travel regularly, there is an additional layer of complexity.

Many of the considerations people face are, understandably, sensitive and difficult. However, it’s essential that they take every step to protect themselves, their families and their business. Issues like key person insurance, succession planning, shareholder and partnership agreements need to be addressed so that every eventuality is considered and planned for.

As a business owner, planning for the future is vitally important. Taking professional advice and planning for the future can help to clarify any future issues and ensure the continuity of the business should something happen to you.

We often assist business clients with Wills, Lasting Powers of Attorney and succession planning working alongside their accountants and financial advisers to ensure a “joined-up” approach to planning.

From a Private Client perspective, here are our top tips on planning for those with business interests:

  1. Take advice in relation to your Will – make sure that the Will works in conjunction with the terms of any partnership agreement, articles of association or shareholders agreement and ensure it is reviewed regularly

Carefully drafted, tax-efficient Wills are the first step in safeguarding your business and ensuring that your business interests pass to the individuals you choose. 

You will need to consider what you would like to happen to your business on your death. It may be that you want the business to continue and to be passed down to future generations. It may be that, if no one is able to or wants to continue the business, you want this to be sold and the sale proceeds to pass to your family. This is, of course, subject to any articles of association, shareholders agreements or partnership agreements and these should also be reviewed to ensure that your business interests can pass by your Will; we often liaise with our Corporate team about this.

It is important to take professional advice in relation to the tax consequences of your Will, particularly in light of the availability of Business Relief in certain situations, as effective tax planning in your Will can lead to significant tax savings on your death. Provided this is available in the circumstances, Business Relief allows you to make gifts under your Will or during your lifetime free from Inheritance Tax or at reduced rates. 

We tend to recommend Discretionary Trust Wills with associated Letters of Wishes for most of our business clients as these are the most flexible types of Wills for maximizing any Inheritance Tax reliefs available (including Business Relief). 

The Discretionary Trust allows your Executors and Trustees to consider all of the circumstances on your death, including changes in tax rules and family and financial circumstances, in deciding the most efficient way to deal with your assets. Your Letter of Wishes also allows you to incorporate more specific wishes in your own words which can be updated very easily should circumstances change.

  1. Put Lasting Powers of Attorney in place sooner rather than later and consider whether it is appropriate to have a separate Lasting Power of Attorney for business decisions

We always recommend that clients put Lasting Powers of Attorney for both Property and Financial Affairs and Health and Welfare in place sooner rather than later in case these are ever needed. 

Should you lose mental capacity without having Lasting Powers of Attorney in place, an application would need to be made to the Court of Protection to appoint a deputy to deal with your assets; this is often a lengthy process, during which time it may not be possible to do anything with your business. A Lasting Power of Attorney avoids this issue by appointing people you trust to manage your affairs in advance, before you lose your capacity or are unable to manage these yourself for any reason.

A Property and Affairs Lasting Power of Attorney can not only be used when you do not have mental capacity but also while you still have capacity with your consent (for example, if you are frail). Your Attorneys must always act in your best interests and if you want to appoint separate Attorneys for your business than those appointed for your personal affairs, you could also consider a separate Business Lasting Power of Attorney.

  1. Consider lifetime succession planning

You can also do an array of planning during your lifetime to mitigate or avoid potential issues in the future and ensure business continuity. The options available will depend on your aims for the business and your individual circumstances however, some very general points to consider include:

  • Ensuring that articles of association and partnership agreements are up-to-date and fit for purpose. If you operate as a partnership and you do not have a written partnership agreement, consider putting one in place.
  • Consider introducing those people who you intend on passing your business to as a director/partner and transferring ownership to them during your lifetime to ensure a smoother transition in the future.
  • With financial markets volatile, consider your Inheritance Tax and Capital Gains Tax position to make sure your interests are protected and as secure as possible.
  • Check that you have key person insurance for all directors and shareholders.
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