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22nd December 2011
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Which of the following most accurately describes the problem?

...

Operators who fail to make a will can jeopardise the future of their business and miss out on tax breaks

Words: Christine Green Nearly two-thirds of people will die without making a will. This means their estates will be administered according to the ‘rules of intestacy’: the wishes of the deceased aren’t taken into account and in some cases the state gets everything.

Consider the case of a married man who dies, without a will, leaving a wife and children, and assets in his name worth £2m. The intestacy rules mean his wife will take the irst £250,000 of the estate, receiving an interest in income, and ‘life interest’ only on half of the remainder – £875,000. After her death, that £875,000 will pass to the children at 18. The other £875,000, after payment of tax of £220,000, will be held in trust for the children until they are 18. If the house is in the husband’s name, this can cause more dificulties, and there is potentially a high inheritance tax charge on the assets held in trust for the minor children.

Furthermore, the rules of intestacy do not recognise cohabitees.

It’s even more complicated if the deceased owned a business: who will take over the running of the business? How is ownership determined? What happens to their shareholdings?

The deceased’s interest in the business will form part of his estate on death and will be divided as set out above. This could mean that the directors/partners ind themselves in business with the ‘life interest’ trustees for the wife and the trustees for the young children. If the deceased had a controlling interest in the business, the trustees could sell the deceased’s shareholdings, meaning that the shares, and maybe the control of the business, would pass to a third party.

Have the last word

By making a will, an operator can choose whom he wishes to act as his executors, the people who will administer his estate and who will have the power to sell assets in the estate.

The will can also appoint special executors to deal with the business alone and these could be individuals closely connected with the business to ensure continuity. On intestacy (death without a will), the administration of the will is carried out by administrators who are generally the deceased’s next of kin.

The will can provide that the executors have adequate powers to participate in the running of the business following death and to take key decisions on behalf of the business.

A will allows for income and shares to be apportioned, as the testator (will maker) wishes, to a spouse or children when they reach a given age, say 25 or 30.

Again, the testator can select trustees before his death; this should ensure that the testator’s fellow business owners do not ind themselves in business with strangers. By managing the distribution of shares, the testator can also minimise the impact of these changes on the business.

It may be that the testator will choose to provide for the spouse by means of a life interest trust. If done by will, it can be drafted as a lexible life interest so that the trustees have the power to revoke part of the trust in favour of the children in due course.

The trustees (who can be selected by the testator) can also be given power to advance capital funds to the widow should they be required. None of this can be done without a will.

There are several important messages for operators. Confront the issues early and discuss them with everyone involved and plan accordingly.

Planning should always include making a will. The average cost of a legally drawn will is between £400 and £500, but the costs to the business and the family of dying without one are potentially far greater.

● Christine Green is a partner at Veale Wasbrough Vizards solicitors and heads the irm’s Private Wealth Sector.


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