Business owners risk chaos by not writing wills

A leading law firm says business owners are risking substantial problems for their business partners and family by failing to make a will.

Mace & Jones made its warning, after finding that a large number of male business owners in their 30s and 40s have not made wills. This anecdotal experience is reinforced by research from Lawpack which has revealed that almost two thirds of Britons have not made arrangements for their will.

Mace & Jones partner Duncan McAllister, a specialist in disputed wills, said serious complications can arise in a business if succession planning for director shareholders does not include a well thought out will.

“A well drafted will can limit the potential for claims against the deceased's estate,” he said. “This includes claims made against the deceased share in a business, which without a will could result in serious damage to the firm. Businesses need to ensure their directors have wills and that these concur with any articles or shareholder agreements. Many businesses are family run with the intention that the business should pass to another family member working in the firm. Often a child working with a parent in the family business will have an expectation that the business will come to them. Where this is not covered by a Will, or if the articles of the business allow for another shareholder to buy the deceased’s shares, families can quickly fall out. The child working in the business may be expected to purchase their siblings interest even if the other siblings have never worked in the business or contributed to its success.”

Mace & Jones wills specialist Carol McBride said failing to make a will, prevents significant tax savings being made.

“Businesses can qualify for an exemption to inheritance tax, the benefit of which is lost if assets pass to the surviving spouse outright,” she said. “If a business is sold on death and if the proceeds of the sale pass to the surviving spouse they will be in their estate for inheritance tax purposes. Careful planning can ensure that the surviving spouse can still benefit in full from the proceeds of sale but without them being taxable on their death. Tax savings can typically be 40% of the proceeds of sale of the business.”

Ms McBride said it is important to ensure the will fits the structure of the business.

“In circumstances where the business may be subject to a partnership or shareholders agreement care must be taken to ensure any will is compatible with the terms of the agreements and that the agreements themselves do not prevent the tax reliefs being claimed,” she said.

Ms McBride warned against people writing their own wills saying they can create unexpected costs as the wording can be challenged.

“The benefit of making a Will with a trust and tax specialist is that they have the experience to look at the whole picture,’ she said. “They understand the interaction of the business with the Will to ensure that any planning undertaken will be fully effective and maximize the reliefs available.”

Mace & Jones stressed it has dealt with cases where wills have either not been updated, or not existed at all. The cost of resolving these cases in court far exceeds the cost of drawing up even the most complex Will. A will should be reviewed at least every five years to take into account tax changes and life changes, it does not need to be onerous or time consuming.