The recent sudden death of the Duke of Westminster and his involvement in the Grosvenor Estate and Wheatsheaf has cast a light on the practical considerations, both long and short-term, which arise on the death of a key family and business member. Irrespective of a business's size, the death of a director, or indeed the sole director, can have wide-ranging ramifications for a business. As a business owner, it is likely that a significant portion of your family's wealth and source of income is tied up in the family business. As a result of this, it is key to give consideration as to how a smooth transition to the next generation, or sale at a fair price to someone outside the family can be achieved following your death.
Why make a Will?
While many people appreciate the importance of making a Will, surprisingly few people in England & Wales have a valid Will in place. Without a Will, adequate provision may not be made from your estate for your beneficiaries under the intestacy rules. In particular, appropriate provision will not be made in relation to your business assets and interests eg. placing it in trust. Although it is often assumed that a spouse or civil partner will inherit everything in the absence of a Will, this is not the case where there are other surviving close relatives. As well as making gifts, your Will enables you to appoint guardians for minor children and this alone can provide significant peace of mind. By making a Will you can also manage inheritance tax by arranging your estate to capture the benefit of any applicable exemptions and reliefs.
Making a Will enables you to appoint executors who will have a vital role in the administration of your estate. In addition, they may act as trustees where assets are left in trust for asset protection reasons. By making a Will you have the opportunity to select the most appropriate people for these tasks and this is particularly important where there are business considerations. It will likely be useful to appoint an executor with practical knowledge of your business. It may also be appropriate to appoint a professional executor in the instance that their professional knowledge will be important or where you feel that family dynamics would benefit from an objective third party.
In practical terms, obtaining the Grant of Probate following a death can take some time. However, executors derive their authority from the Will (not from the Grant of Probate) and this will be of practical use when continuing day to day functions of the business following your death. In the interim between death and the registration of your executors as shareholders, the day to day running of your business can be taken over by someone with the requisite experience at the request of the executors.
Where you are the sole director of your business, in order for your business not to be jeopardised by something happening to you unexpectedly, as well as making a Will, it is strongly advisable to have in mind the names of one or two people who could take over the reins of the business (or at least give immediate advice to your executors).
Without powers specifically granted by a Will, your trustees will have to rely on trust laws, some of which date back to 1925! These may not give your trustees sufficient flexibility to deal with the assets in the best interests of your beneficiaries, or your business.
When considering the position of your business interests on your death, a thorough review of your company's Articles of Association or other relevant governance agreements should be undertaken, with a particular focus on the provisions regarding the death of a director or shareholder. The governing document will set out the provisions regarding the transferring or transmission of shares in terms of eligibility. This is a key point to consider if you wish your family to inherit your shareholding but, for example, the governance document provides that existing shareholders have pre-emption rights on the death of a shareholder.
Your estate planning may involve the use of family trust structures. Such structures may have been in place for multiple generations in relation to the family business. When considering existing structures or putting new structures in place, it is always worth considering how these will interplay with family dynamics. The importance of appointing appropriate and sound trustees can never be overestimated.
One cannot guarantee that the administration of your estate will run smoothly, nor is it always possible to protect your wealth and/or your family entirely in lifetime or in death. However, through thoughtful and thorough family and business discussions and understanding your business's governance, you can take steps to minimise the risk of disharmony and/or expensive court actions by planning ahead and taking professional advice from advisers you trust before any major life event. Often an independent adviser can provide a fresh perspective and clarity to the process of making decisions about planning for life to continue after your death – a process which otherwise can be more emotionally (and financially) challenging for your family and business than it need be.
If you require further information on anything covered in this briefing, please contact Sonal Shah (email@example.com; 020 3375 7213) or your usual contact at the firm on 020 3375 7000. Further information can be found on the Family Businesses pages on our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, December 2016