Business owners are risking substantial problems for their business partners and family by failing to make a will.

Serious complications can arise in a business if succession planning for director shareholders does not include a well thought out will. Why? A well drafted will can limit the potential for claims against the deceased’s estate. This, of course, includes claims made against the deceased’s share in a business. If there is no will, your business could suffer serious damage.

Businesses need to ensure their directors have wills and that these meld with articles of association, and, or shareholder agreements. Further, many businesses are family run with the intention that the business should pass to another family member working in the firm. Often a child working with a parent in the family business will have an expectation that the business will come to them. Where this is not covered by a will, or if the articles of the business allow for another shareholder to buy the deceased’s shares, disputes could easily occur. The child working in the business may be expected to purchase their siblings interest even if the other siblings have never worked in the business or contributed to its success.

Another pro of making is a will is the benefit of significant tax savings that can be made. Businesses can qualify for an exemption to inheritance tax, the benefit of which is lost if assets pass to the surviving spouse outright. If a business is sold on death and if the proceeds of the sale pass to the surviving spouse they will be in their estate for inheritance tax purposes. Careful planning can ensure that the surviving spouse can still benefit in full from the proceeds of sale but without them being taxable on their death. Tax savings can typically be 40% of the proceeds of sale of the business.

Of course it is important to ensure the will fits the structure of the business. In circumstances where the business may be subject to a partnership or shareholders agreement care must be taken to ensure any will is compatible with the terms of the agreements and that the agreements themselves do not prevent the tax reliefs being claimed.

Further, a will should be reviewed at least every five years to take into account tax changes and life changes, it does not need to be onerous or time consuming.

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This entry was posted on Friday, September 19th, 2008 at 9:54 am and is filed under Business starts ups, Wills, Power of Attorney and probate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.