Posted on: 13/05/2021 by: David Morgan in: Financial
Estate planning was once the preserve of the wealthy but these days it is extremely important for everyone, especially business owners. Nobody likes to think about the inevitable but when you run a business you know better than most that the key to success is planning.
As a business owner, your family probably rely on you as the main source of income, so if the worst was to happen and you died, the financial implications for your family could be devastating. This is definitely not what you want to happen at a time when your loved ones are going through such an emotionally traumatic experience. Yet, it is alarming to know that only 30% of businesses in the UK have any estate planning in place and almost three quarters of those do not update their plans when significant life changing events such as divorce or births happen.
An estate plan sets out your wishes with regards to what you want to happen to your money and property and how you want your affairs managed. In terms of a business, it will either make sure that a person you trust takes control of the business when you die or are unable to continue running the company, or it instructs how the enterprise should be wound down. It will also include a list of your assets and debts, as well as any income, such as insurance policies that will pay out when you die. Let’s take a look at some of the key considerations of estate planning for you as a business owner.
Begin with a will
Hopefully you have already got a will in place but it might not be sufficient with regards to your business. Therefore, it may be worth taking out a business will, especially when the business is the main source of income for you and your family.
An important reason for a business will is that you may wish to appoint different people to administer your business as opposed to the ones chosen for your personal estate. There are also inheritance tax reasons that justify having a business will. The will can also ensure the transition of your business to your family or chosen beneficiary is a seamless affair and your shares are sold at a fair price.
The running of most small businesses is almost completely dependent on their owner. If you fall into this category, when you die, the business your heirs inherit would probably cease trading. This means your beneficiary or beneficiaries may receive only a small inheritance or none at all and they may be left with a hefty tax bill. If you are a director of the company, then the bank accounts may be frozen, so in this scenario a business will ensures the company continues to run smoothly.
Register a Lasting Power of Attorney (LPA)
An LPA is another important consideration for you as a business owner. An LPA enables you to appoint others to manage the financial affairs of the business if you become physically or mentally unable to do so.
Focus on your tax efficiencies
Another important point is to minimise your taxes while you still can. Unquoted shares in your business can receive up to 100% Inheritance Tax relief if they qualify. Planning your will or placing shares in a trust will mean your loved ones won’t have to pay tax on those shares.
Ensure your key records are in order
This is a simple task but is often neglected. Making sure all your important documents and files are kept organised and your family and business partners know where to access them in case of an emergency will save a lot of stress in the future. Such documents to include here are the business plan, insurance policies and financial statements. Finally, remember to keep your plan updated.
Ensuring you have everything set in place will give your loved ones that special gift of peace of mind, knowing that when the inevitable does happen, they don’t have to worry about the future of the business and their livelihood, regardless of how trivial that may seem at the time.
To find out more about Estate Planning and its importance for business owners, please click here.