10 Top Questions About… Family Business Succession Planning
#SucessionPlanning #FamilyBusiness #Wills
Your top questions about family business succession – and how to include it in your estate planning.
1. What is family business succession planning?
In terms of the business, it’s pretty much what is says – working out who would take over your family business whether you retire or choose to step down.
Family business succession planning is a little different to internal business succession planning, which is more about ensuring the right people have the right skills within the business itself. That might include family members, but often includes a strategy to recruit and retain new talent.
Planning for a family business succession is particularly important in your Will, so that the person/s you wish to succeed you are clearly defined on your death.
You also need to plan for the unexpected, such as if you are suddenly becoming incapacitated or ill, and can no longer continue running the business, by including a Business LPA.
Try this free 10 minute online course today. Includes certificate, £50 voucher.
2. Who do I need to include in my family business estate planning?
You need to consider all your business’s stakeholders, including:
- Co-owners and partners
- Spouses and adult children involved in the business and their roles
- Your fellow Directors
- Shareholders and investors (public and family)
- Board members (??)
- Extended family members working in the business
- Staff / employees
Then, talk to a professional, as business succession can get very complicated!
“The business asset itself will need to be factored into the Estate and dealt with as part of the overall Estate administration. …. What happens to business assets will depend on a number of factors, but a good starting point is to establish the structure of the business – sole trader, partnership or limited company.”
Co-op Legal Service
3. Can the family inherit my sole trader business?
No, not unless specific succession planning provision has been put in place that allows for this. If you operate your family business as a sole trader, the business effectively dies with you, and the assets are included in your personal estate.
“It is often assumed, particularly with family businesses, that other family members can take over the business. However, this is not correct. Upon the death of the sole trader, all business accounts will be frozen until probate is granted. This can have detrimental impacts on money pending being paid out of the accounts, such as business expenses and wages.”
Legal Vision
4. Who in the family should inherit the business?
If you own the family business outright, and/or have taken into account all the stakeholders, who gets what and does what is up to you. The important factor is to consider that not all members of your family might be willing and/or able to take on the day to day running of a business.
Your spouse, for example, may be a co-owner but have never stepped inside your office. Your adult children may have businesses of their own and not want yours as well. If so, look beyond to the next generation and extended family and consider who would be best for the business.
5. What are the tax implications of family business succession?
“In this world, nothing is certain except death and taxes.”
Benjamin Franklin
Inheritance tax (IHT), capital gains tax, and business property relief all come into play if you bequeath part or all of your business to the family. Most business owners will be aware of the first two taxes, but Business Relief is less well known.
Goverment Website“Business Relief reduces the value of a business or its assets when working out how much Inheritance Tax has to be paid. Any ownership of a business, or share of a business, is included in the estate for Inheritance Tax purposes.
You can get Business Relief of either 50% or 100% on some of an estate’s business assets, which can be passed on:
while the owner is still alive
as part of the will.”
Talk to your business accountant to discover exactly how much your business might be worth, and to them and your financial advisor about the tax implications. Both discussions would benefit from a current market valuation for your business as a starting point.
6. How might family business planning help prevent disputes among family members over a Will?
Wills can be contested, which is why it’s important to “enshrine” the details of your family business succession plan in your Will. It’s also crucial to talk to the family stakeholders and gauge their feelings. They may not have the same sentimental attachment to the family firm that you do, for example.
The family will also need to have their roles clearly defined so that other stakeholders in the business know where they stand. The last thing your business needs after your death is a warring family and a very unhappy workforce!
Here at Panthera Estate Planning, I can help you write a Will that is as clear as possible. Call and make an appointment to discuss your requirements.
7. How much would my Will’s executors need to be involved?
In short, a lot. Your executors are responsible for all your estate, including your business. They will be responsible for:
- Paying any bills owed by the estate.
- Working out whether any Inheritance Tax is due, and paying it.
- Applying for Probate.
- Paying any other taxes.
- Valuing and distributing the estate according to the will.
- Making any court appearances required.”
So, bear in mind that if you appoint family executors, they may well be busy, so probate can take longer and cause more strain if a business is involved. To help them, you can appoint a professional such as a solicitor as an executor, or a fellow Director.
8. Do I need a partnership agreement or shareholder agreement for a family business?
You can put in place agreements which are separate to your own estate planning for the business, but be aware of how they might overlap.
“A partnership agreement or shareholder agreement is a contractual agreement between the business owners … on what will happen to the owners interest in the business following death. There may be a provision in the agreement where the surviving partners/shareholders have a right to buy the deceased partners’ shares from the estate of the deceased … If the partners/shareholders asserted this right, the surviving spouse or partner would no longer own the shares in the business and would receive the cash value for the purchase of the shares.”
That’s why it is important to get professional legal advice on any such agreements, as they are binding and the family need to know about them too.
9. Do I need a Business Legal Power of Attorney?
In our experience, yes. If you have an accident, fall ill, and/or become mentally incapable of running the business, the Business LPA enables the attorneys named on the LPA to take over and run the business on your behalf. A Business LPA is separate to your personal LPAs, which you should also have so the family can look after your personal finances, etc.
10. Can you help me with my business succession planning?
Yes, Get in touch with us today to learn more about how you can secure your future
https://www.pantheraestateplanning.co.uk/blog/trusts-long-term-care-planning
