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Certain business assets attract significant relief from Inheritance Tax at either 50% or 100% depending on the type of assets involved but what can be done on a more practical basis in order to protect your business and your beneficiaries, should the worst happen? Guest blogger and Wills specialist James Blakemore looks at the options.

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If you die, what happens to your business? It’s a big question whether you’re a sole trader, partner or director/shareholder. Your Will gives you the chance to reduce the risk of loss of profit, dissolution of the business, unbalanced shareholder control. Most importantly, it ensures your assets pass to those you want and that they get a fair value for them. Ask yourself :

1. Who gets the business assets or their fair value – your spouse, children, business partner or employees? Your Will is the only way to ensure that the rightful beneficiary receives their gift.

2. What about the day to day running of your business if you’re not there? How will the business cope without you? Your executors administer your estate but are they best qualified to actually run your business? If not, you can appoint separate executors to deal with the running of the business and give them wide powers of management. In effect, you can separate your personal and business assets to ensure that they are dealt with as you want and by those you trust to do the right thing.

3. What will happen to the business, your co-directors and employees? Would you want your business to be sold as a going concern or simply dissolved to achieve the best price? Many shareholder and partnership agreements include the right to allow other parties the first option to buy the shares or the assets of a deceased partner from their estate – however, many do not. As well as making your wishes legally binding in your Will you can also have a separate agreement with your business partners to deal with this.

Commonly referred to as a “Cross Option” or “Double Option Agreement”, it is used in situations where a shareholder or partner has passed away or is critically ill. If you believe that the business would be best served by its assets being retained by the remaining owners and/or employees, these agreements allow the assets to be offered first to the owners/employees and require your executors to do this.

If you want the business to continue and your beneficiaries to receive a fair price for the shares or other assets, this can set out the terms of the transaction. It would usually require each shareholder or partner to take out a suitable life and/or critical illness insurance policy, held in trust, to ensure that funds are available to purchase the business assets.

4. In relation to critical illness, what happens if you are unable to make decisions? Your executors will have no rights to deal with that as they are only appointed on your death. The answer lies in a Lasting Power of Attorney. You can appoint those you wish to deal with your property and financial affairs in circumstances where you can’t and also appoint those you trust to deal with different aspects of your affairs. Much like the appointment of separate executors, you can appoint different attorneys to deal with your personal assets and others to deal with business assets. You are also free to restrict or place conditions on their role.

Your Will ensures that those you want to benefit from your estate can do so, without the interference of outdated statutory rules. It is equally important to ensure that your Will reflects that both your wishes in relation to your business are carried out and offers comfort to your beneficiaries and business partners by ensuring that which you have worked so hard to achieve is not lost.

Can we help you? Our commercial and private client teams can advise on drawing up Cross Option Agreements, Wills, Trust Deeds and Powers of Attorney. Contact us today for more certainty.

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