Where there’s a will there’s a way
All too often the headlines we hear about are from people who have died without a will, and sadly, while in many cases they would have preferred to have left their affairs in order, the result is far from their ideal.
As Howard Hackney, leading family business consultant in the UK explains, “Family business owners are no exception, and often, due to the need to determine how to split their estate between their children, some of whom may be working in the business and some who may not, it is often easier not to address the matter”.
Howard adds, “Not only do they fail to decide what to do, they often decide to simply split things equally among the heirs, which in the long term can cause other problems to materialise when some are working in the business and some are not. This can cause issues in terms of demand for dividends versus the need to use the money for investment within the business and lead to contentious times in the future, something that no family business owner actually wants to create in the first place”.
Some frightening facts
The survey by Foresters Friendly Society and ICM found some interesting statistics that family business owners need to take on board. The need to think about the future and plan accordingly. Here are some facts:
- A quarter of Brits have never thought about making a will (24%)
- A similar number (23%) think they are too poor to make a will
- Nearly half of those aged between 55 and 64 have not made a will (46%) with over a fifth never having thought of making one (22%)
- Over one in eight (13%) are relying on self-written wills, the validity of which is more likely to be challenged upon death
- Children stand to be affected by the state of Britain’s wills as over three quarters (77%) of parents with children over the age of five have not made a will with nearly half of those that have (46%) not reviewing it in the last five years
Draft a will and review it regularly
Whilst it is something that’s easy to put off, a will should be considered more of a necessity for each and every one of us, not least to ensure that problems are not bequeathed upon death, although this is often easier said than done, especially as it requires consideration of mortality, something that nobody relishes.
However, death is a fact of life and planning for the future can help to make the financial issues at an emotionally difficult time easier. As Howard continues, “Planning now helps to remove some of the angst and concerns going forward and helps to pave the way for the family to remain harmonious and the business not to suffer unnecessarily too. There are some simple steps that can be taken to mitigate some of these risks”.
Things to think about
There are a number of things to consider when planning for the future, not least prevailing rules and regulations concerning inheritance tax, gifts and allowances as well as some more challenging considerations too:
- Think about the need to provide for any partners as well as any provisions for the children
- Bear in mind that the family business is an asset to be passed on, giving thought to any family members working in the business compared to those not working in the business
- It might be appropriate to divide all of the assets and if possible leave voting control in the business to those working in the family firm and other assets to those not working in the business
- Leaving shares equally to all the next generation may lead to financial issues for the business in the event that there are insufficient funds in the business/family to buy out any inheritor that wishes to dispose of their shares
- The time drain of having to pick up the pieces of a business, running it and dealing with day to day operations while wanting to grieve for the loss of a loved one and the added issues that would be present if there was no will, or contentious issues arising from it
- Talk to the next generation and share your thoughts with them. Clear communication can help to manage the overall process too and will give everyone a chance to air their views
- Review any existing arrangements to make sure they are up to date
- Consider introducing (or reviewing if there is already one in place) a shareholders agreement which should contain clauses with regards to who can own shares, how they can be disposed of, whether non-family members (spouses and partners) can own shares etc, thus putting in place some measures to protect the ‘family business’ in the future
- If you are divorced or your civil partnership has legally ended nobody can inherit under the rules of intestacy but if you are not legally divorced then there needs to be a review of existing documents to ensure that your wishes will be implemented accordingly
- Consider carefully the inheritance tax position and do not automatically assume that shares in the business will be exempt from such tax
- Consider leaving specific provisions such as to grandchildren for schooling
As Howard concludes, “Family business owners work hard and often do so throughout their life and one of the common concerns heard from many is a desire to make a difference in the future and leave a legacy that can bring joy to future generations. One thing is for sure, failure to have a will and to review it on a regular basis is likely to result in them failing to achieve their intended goal”.
“It may sound like common sense, but nobody knows what lies ahead and drafting or reviewing a will is not something that should be put off or left to later, act now and mitigate the potential for conflict affecting your family and your family firm, not to mention your legacy”.