As a sole trader, have you thought the importance of taking your business into account when writing your Will?
One of the most important parts of business planning is stating how you wish the business to be administered in the event of death, by making a Will. If you die without making a will (intestate) your family could be involved in a lengthy procedure to be able to access the equity in the business, and all of this at a time when they will probably need it most.
Dying intestate means that your business will be administered according to UK intestacy laws, rather than how you may have envisaged. For example, without a Will, your business will be sold by the Executor appointed by the court under intestacy rules. At worst, this could be someone you have no wish to see dealing with your estate. Or, it could be that the Executor simply does not have the experience, contacts or knowledge to realise the maximum value of your business.
Through a professionally written Will you can nominate the Executor yourself; someone who you know and trust, and who can value your business accurately and distribute it effectively, according to the terms of your Will. You can also use your Will to ensure that your beneficiaries are able to use other assets in your estate to support the business and allow it to carry on trading. This could remove the pressure for a quick sale and help them get a better price for it in the future.
There are specific considerations to bear in mind if a sole trader dies, as a sole trader business will legally cease on death and the business accounts will be frozen as soon as soon the death is registered. The Executors will not be able to operate the bank accounts until probate has been granted – this can take some time, particularly where a full Inheritance Tax form has to be submitted to HMRC and clearance given.
It is possible to apply for an emergency grant of probate to enable the business to continue until the main grant of probate has been obtained. This involves submitting a request to the Probate Registry as to why the grant is urgent and applying for clearance from HMRC. Usually, a professional Executor is chosen to act under an emergency grant and additional costs will be involved. Once the emergency grant has been issued, the business bank account is transferred into the professional Executor’s name, helping to keep the business going until the main grant is issued.
Another main area to consider is Inheritance Tax planning. The business assets (which may include cash, IT equipment, stock etc) will form part of your total estate and be passed to your chosen beneficiaries under the terms of your Will. Where the estate is large enough (over the current Nil Rate Band, this is to include the value of any homes, business and other assets) and is not left to a spouse or civil partner, Inheritance Tax (IHT) is payable on all assets above the current Nil Rate Band.
Part of making your Will should be to make it as tax efficient as possible. This could involve putting assets into a trust to reduce your Inheritance Tax liability and ensure that more of the money goes to your family rather than the taxman.
Business Lasting Power of Attorney
As a sole trader, your business is not likely to have a separate legal entity, so you should really make sure that you have a Lasting Power of Attorney (LPA) in place. There are two types of LPA – the Personal Welfare LPA will protect you in relation to decisions regarding your living arrangements and any appropriate care needs. The second type is a Property & Affairs LPA which covers money and property-related decisions. Creating an LPA will allow you to nominate a person of your choosing to make decisions on your behalf if you are no longer able to do so yourself.
Your attorney can access accounts, make payments and deal with all those other elements of the day-to-day running of your business. Setting up an LPA is a straightforward and relatively quick process, but the benefits can be invaluable.