John-Paul Dennis, partner at Kirwans law firm, has spoken of his concerns in the run-up to the International Festival of Business 2014, which takes place in Liverpool this June and July.
According to Mr Dennis, there is growing anecdotal evidence to suggest that a growing number of property investment partnerships and companies are operating within what he calls ‘the danger zone’ without any estate planning in place, because owners are often so concerned with building their business that their personal affairs are put on the backburner.
This can lead to chaos for family members and business partners who, in the event of the investor’s death, can become embroiled in bitter legal battles as a result. In many cases, it can also result in the end of the business.
Mr Dennis said: “It is vitally important that property investment partners and companies engage in proper investment planning.
“If a partner or shareholder dies without making provision for their share of the business, family members with no prior experience could find themselves entitled to having a say in how the business is run.
“Aside from how a lack of a will would affect a company or partnership, it could also mean that the family of the deceased would be unable to make any financial gains from the business unless it was sold.
“Needless to say, for family members and partners alike, this sort of scenario can be a living hell. Not only are they trying to cope with grief, but they also become embroiled in complex business matters at a time when they’re unlikely to be thinking straight.”
Fortunately, said Mr Dennis, there are measures that can be taken in order to avoid these sorts of problems.
“A cross option agreement, for example, can give any other business partners the option of buying out the deceased family member’s share of the business.
“Provisions can also be made for business owners who wish to pass on their share of the business to a family member, but who are unaware that surviving business partners actually have a legal right to buy out any beneficiaries at market value at the time of death.
“There are also tax implications which need to be addressed in order to avoid the beneficiary from losing out. Careful planning with an expert solicitor can help avoid problematic situations from occurring.”
Five Top Tips on Successful Estate Planning:
· Consider what financial protection is in place for your beneficiaries, and who you would like to deal with your assets and make business decisions;
· Choose your executors wisely – they may need to make difficult decisions, especially regarding the running of your business or onward sale;
· If you have young children choose someone other than the executor to act as their guardian, as you don’t want the executor agreeing with everything the guardian requests;
· Are you in a business partnership? If so, then don’t name this person as either an executor or trustee in order to keep your personal estate decisions separate to those of the business;
· Sadly we are often worth more dead than alive, so assess your liability on death to capital gains tax and inheritance tax, and ask your solicitor whether steps can be taken in advance to reduce this liability.
