Gardner Leader

Robert Jobson, Associate within the Inheritance Protection Team at Gardner Leader LLP Solicitors, explains why it is important for business owners to prepare a will.

Imagine that you run a small company and hold all of the shares. You are married with three children and one of your daughters works with you in the business. You plan to transfer some shares to her soon in recognition of the work she has put in. What issues do you need to consider?

In these circumstances, you certainly do need a will. If you do not, you will die "intestate" and your estate will pass to your family in proportions set down by the strict rules of intestacy, which are unlikely to be appropriate.

The following are the main issues you will need to consider with your adviser:

Inheritance tax
Business Property Relief (BPR) is currently a very generous relief from inheritance tax. It is generally available for the shares of small unlisted companies and can provide relief from inheritance tax at 100%. A major exception to this is for shares in companies that are primarily engaged in property investment/management and/or share dealings. In this instance, the relief is generally not available. Furthermore, it might not be available if your company holds a large amount of cash, in which case an equivalent proportion of the value of the shares might not attract BPR.

You should certainly seek expert advice on whether your shares do attract the relief and to ensure that you maximise the tax-planning opportunities that may be available to you.

You will also need advice on the interplay between BPR, gifts to your wife (which are exempt from inheritance tax) and the "transferable nil rate band" which may be available if your wife dies before you.
 

Equality
If you are certain that your daughter will want to run the business, then she makes an obvious beneficiary for the shares. However, you will need to consider your spouse and other beneficiaries to ensure that they receive appropriate sums from your estate.

Shareholders' agreements
As the sole shareholder, a shareholders' agreement is not really relevant. However, when you give shares to your daughter, you will need to consider entering into an agreement on how the shares will be managed. This can help prevent major disagreements in the future.

Cross-option agreements
If you do give some shares to your daughter and she wants to takeover the company, instead of leaving your remaining shares to her in your will, you could consider entering into a cross-option agreement with her. This could provide her with the option to buy the shares from your executors following your death (and for you to buy her shares from her executors if she dies before you). You could also obtain a life insurance policy to provide your daughter with sufficient funds to buy the shares from your estate. This can assist with the equalisation of your estate amongst your intended beneficiaries as you can then leave your personal assets to all your children equally, including the proceeds from the sale of the shares to your daughter.

Executors and trustees
If your daughter decides not to follow in your footsteps, it is important that you appoint suitable executors who have the necessary skills to manage your company and sell it at the best possible value for your beneficiaries. You might also want to consider creating a trust in your will and providing the trustees of that trust with the ability to continue to run the company over a longer period of time.

Expert advice
The issues identified above are complex and have not even addressed any "family" issues that may affect your will-planning. Do ensure that you obtain expert advice on your circumstances as your will should achieve all of your objectives.