Securing your business legacy: The role of Wills, LPAs, and trusts in passing on a business

As a business owner, planning for the future extends beyond your retirement or exit strategy. Ensuring that your business is passed on smoothly and efficiently in the event of your death or incapacity is crucial to maintaining its value and continuity. This requires careful consideration of your Wills, Lasting Powers of Attorney (LPAs) and the use of trusts. In addition, you should have tailored Articles of Association and a bespoke Shareholders’ Agreement in place (where there is more than one shareholder involved in the business), or a relevant Partnership Agreement or LLP Agreement in place (as may be applicable depending upon how the business is operated). In this blog, we explore the essential steps to take in safeguarding your business legacy.

Separate appointment of executors and trustees for your business

One of the first considerations for business owners is the appointment of executors and trustees in your Will. While it may be tempting to appoint the same individuals to handle both your personal estate and your business interests, this may not always be the most prudent approach.

• Why separate appointments? The skills and knowledge required to manage the ongoing operation of a business differ significantly from those needed to administer a personal estate. Appointing separate executors or trustees with relevant business experience ensures that your business is managed effectively and continues to operate smoothly after your death.
• Legal considerations: Specific provisions should be included in your Will to grant the appointed executors or trustees the necessary powers to carry on the day-to-day running of the business. These powers might include the ability to make management decisions, enter into contracts or handle financial matters on behalf of the business. Without these provisions, your executors may face limitations that could disrupt business operations.

Flexible trusts for business interests

The future is unpredictable, and the circumstances surrounding your business and its value may change significantly between the time you make your Will and your death. This is where a flexible trust within your Will can be particularly beneficial.

• Adapting to changing circumstances: A flexible trust is similar to a discretionary trust, with one key difference: it allows the distribution of your business interests to be determined based on the situation at the time of your death, rather than when the Will was made. This flexibility ensures that the trust can take into account the latest available tax reliefs, such as Business Property Relief (BPR) for Inheritance Tax (IHT) purposes.
• Impact of tax reliefs: The availability or non-availability of tax reliefs can significantly influence who should inherit your business interests. For example, if BPR is available, passing the business to specific beneficiaries might be more tax efficient. Conversely, if reliefs are no longer available, a different approach might be required to minimise the tax burden on your estate.
• Political uncertainty: In an environment of political uncertainty, where tax laws and reliefs may change, having a flexible trust is even more critical. It ensures that your business interests are handled in the most advantageous manner for your beneficiaries, regardless of the prevailing legal or tax landscape at the time of your death.

Corporate Documents

Depending upon how you operate your business, and whether or not you are in business with other people (related to you or not), you will need to ensure that you have the appropriate corporate documentation in place not only to govern your relationship and the management of the business generally, but also to set out what will happen in the event of a business owner’s death. It is imperative that these corporate documents are reviewed or prepared periodically, in tandem with any estate planning (including the preparation of Wills and LPAs) that you undertake.

Regularly reviewing your Wills

Life and business circumstances are rarely static. Once a business has been sold, and the former owner no longer holds business assets but instead has cash or other investments in their estate, it is essential to update your Will to reflect this new reality.

This is because a Will made when you were a business owner may contain provisions that are no longer relevant or advantageous after the sale of your business. For example, tax planning strategies that applied to your business assets may not be suitable for your new financial situation. Regular reviews ensure that your Will remains aligned with your current assets and financial goals.

The role of Lasting Powers of Attorney (LPAs) in business continuity

While Wills address the distribution of your business after your death, Lasting Powers of Attorney (LPAs) are vital for ensuring the ongoing smooth operation of your business whilst you are still alive. They ensure your wishes will be carried out if you become mentally incapacitated through illness or injury.

LPAs are most commonly used to ensure an individual’s preferences for their personal finances, health and wellbeing are respected in the event of their incapacity. However, the individuals you appoint to manage your personal affairs may not have the necessary expertise or knowledge to run your business. Therefore, it may be advisable to create a separate LPA specifically for your business, and appoint individuals who are well-versed in its operations and who can make informed decisions in your absence.

In addition to appointing the right individuals, your business LPA may need to include specific provisions relevant to the operation of your business. This could include instructions on how decisions should be made, authority to manage bank accounts and the power to make financial and contractual decisions on behalf of the business.

Conclusion

Passing on a business is a complex process that requires careful legal planning to ensure that your legacy is preserved and that your business continues to thrive. Whether it involves appointing the right executors and trustees, setting up flexible trusts, regularly reviewing your Wills, creating separate LPAs for business continuity or ensuring that you have the appropriate corporate documents in place, each step is crucial in safeguarding your business’s future. At Attwaters Jameson Hill our experienced legal team is here to help you navigate these complexities and ensure that your business is in safe hands, both now and in the future.

To discuss your situation with an expert lawyer, please do give us a call on 0330 221 8855 or email enquiries@attwaters.co.uk