The Dangers of Not Having a Properly Drafted Will for Business Owners
A well-structured Will is essential for everyone, but it becomes even more critical for business owners. When you own business assets, failing to have a properly drafted Will can put your business at significant risk and result in unnecessary tax liabilities. Here are some of the key risks of not putting a suitable Will in place:
1. Mismanagement and Loss of Value
Without a Will, your business or shareholding could pass to someone who lacks interest in running it or lacks the necessary skills and experience. This can lead to inexperienced individuals mismanaging your business and the business losing value as a result. This not only impacts your beneficiaries but also your employees who each have their own families to think about.
2. Conflict Among Potential Beneficiaries
In the absence of clear instructions, multiple family members or business partners may end up in conflict over how the business should be run. Disputes can arise regarding ownership, decision-making and strategic direction.
For example, individuals who have inherited their shares and don’t work in the business may be more focused on financial gains and extraction rather than the idea of continuing the business longer term. Existing shareholders who already work for the business are more likely to be focused on the long term success of the business alongside or over short-term financial returns. These sorts of conflicts not only harm familial relationships but also jeopardise the business’s stability and growth.
3. Personal Wishes
Your personal feelings about who should inherit your business or shares matter. Perhaps you want your family to be involved in the business, or you trust a specific employee to continue your legacy. There are many different options and the intestacy rules, which will govern the distribution of your estate if you do not have a Will in place, are unlikely to reflect your wishes. It is important that your wishes are set out in black and white.
4. Lack of Tax Efficiency
Even if you do want your family to benefit from your business, leaving the business to named individuals may not be the most tax-efficient option. You may want to consider alternative structures, such as leaving your family a sum of money equal to the business’s value rather than the business itself or using a trust in order to ringfence the business assets and provide your family with flexibility as to how they benefit.
5. Sole Traders and Business Assets
As a sole trader, your business will cease to exist upon your death. However, your business assets will pass to the executors of your Will as part of your estate. Without a Will, administrators may need to sell business assets to settle debts or taxes, potentially affecting the business’s continuity.
In summary, a well-drafted Will can protect your family, protect your business and ensure that your chosen beneficiaries benefit in the most tax efficient way possible. Please do not underestimate the dangers of neglecting this crucial aspect of your estate planning.
