Estate planning for business owners

If you own your own business, then planning for the future is important to ensure that when the time comes, the transfer of your enterprise goes without a hitch.

A business often comprises a large part of the owner’s estate. Putting the right plan in place will help make sure that it can pass to the next generation smoothly or wound up efficiently and without dispute.

Decide what you want to happen in the future

If you would like your business to be passed on to a family member, you will need to draw up a succession plan. This will set out a framework for transferring ownership, rights and shares. This can be tailored to meet the specific needs of everyone involved. For example, you may want to transfer ownership to your children but ensure that your spouse continues to receive an income.

But you’ve got some important considerations:

-         Are your beneficiaries competent enough or even able to manage the business?

-         Do they even want to?

-         Do you have other shareholders / Directors? How would they feel about having your beneficiary/ies as their new business partner/s?

-         Would your beneficiaries prefer to sell their shareholding?

Make a Will

Putting a valid Will in place is an essential part of estate planning. As well as allowing you to leave your assets to those whom you want to receive them, you can also ensure that your estate is left in the most tax-efficient way possible.

Leaving a valid Will can also reduce the risk of disagreements between family members following your death.

A will is crucial to ensure your business which is likely to be exempt from inheritance tax is structured appropriately with suitable business trusts to ensure maximum efficiency if the business interest is sold for cash. This is because a trading business on death is generally exempt from inheritance tax.

Cross Option Agreements

This is an agreement that is entered into by all shareholders to grant surviving shareholders the option to purchase the deceased shares. All shareholders take out a life policy assigned to trust for the benefit of the surviving directors and their families. The surviving directors are the trustees. Importantly, they have the power and the funds to buy the shares from the estate of the deceased.

This is most certainly complex planning and must be entered into carefully.

Make a Lasting Power of Attorney

A Lasting Power of Attorney is a document giving legal authority to act on your behalf to a trusted representative of your choice. If something were to happen to you and you could not manage your affairs, the situation could be very difficult for your business. It is possible that no-one would be able to access accounts, make important decisions or authorise payments.

Application would need to be made to the Court to appoint a deputy, which could take a substantial amount of time, during which your business could flounder.

A Lasting Power of Attorney would allow your representative to step in straight away and manage your affairs on your behalf.

Of course, with a specific Business Lasting Power of Attorney, you could appoint someone specific to manage your business affairs as opposed to someone else who’d manage your personal affairs.

As a business owner, estate planning means you have the peace of mind of knowing that your organisation will cope with transitions in the future, even if you are not around to oversee them.

Hope that's made you think about your business succession plans.