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Have you ever thought about what will happen after you die? I mean, really thought about it. Not about the big questions, like ‘is there life after death?’ Or ‘will my life really flash before my eyes?’ But about the bigger questions. For example, ‘what will happen to my assets?’ And, if you’re a business owner, ‘what will happen to my business if I’m not there to run it?’ A business succession plan is required in the event of an unexpected death of a company owner.
Many of us are familiar with the need for a Will and the Lasting Powers of Attorney, which are recommended for the protection of your financial affairs and your health and welfare in case you’re ever incapacitated. The same is needed for your business. Are there bank accounts or systems that only you can access? If you weren’t there, would someone be able to access funds to pay your staff and suppliers? What about contracts and other legal documents? Would somebody else be able to sign them in your absence?
Why is it important to have a business succession plan?
None of us want to confront our own mortality. Yet, every day we plan for the worst by insuring our cars, houses, and our lives. Life insurance is certainly nice to have, but it’s a one-off source of cash. For many, a family business is an ongoing means of financial support for the wider family. It’s also important to be mindful of the employees that are dependent on their monthly salary. An untimely and unexpected death could very easily shatter this fragile ecosystem.
When appointing Attorneys, the natural choices are usually your spouse, adult children, or other trusted friends and family. Whilst these may be the best choices for your personal affairs, they are not always the best people to run your business. Therefore, we recommend that you have two financial Powers of Attorney. One for personal financial affairs, and one for aspects relating to your business. The circumstances are very different, so it is best to have appropriate Attorneys appointed for each role.
What happens if there isn’t a business succession plan?
Careful consideration needs to be given to where ownership of the company will fall under the terms of your Will, or under the rules of intestacy if you don’t have one. It is a common misconception that a spouse will always inherit everything in the absence of a Will. This is certainly not the case.
In cases where there is no spouse, or children, it could be the deceased’s parents, siblings, or nieces and nephews who inherit the business. This could be disastrous when the company’s ownership is split amongst disparate family members who have no clue how to run the business. They may even have differing views on what should be done with it.
You also need to think about what will happen to the family home, or any other property in the Estate. Under the rules of survivorship, property owned jointly will automatically pass to the other joint owner, regardless of what your Will might say. Only by owning a property with someone else as Tenants in Common can you direct your share of the property under the terms of your Will.
We’re here to help
Again, none of us enjoy thinking about our own mortality, but, for most of us, a large part of the sadness about death is the worry about who, and what, we are leaving behind. We all like to think that we are indispensable. The reality is that one day the world will keep turning and we will not be on it. As sad as thinking about that might make us, there is a huge amount of satisfaction in knowing that our affairs are in order, and we are leaving things in the best possible state for our loved ones and others who are reliant on us.
As trusted advisors, we help our clients through some of the best, and worst, times of their lives. Part of our role is to ensure that the right planning is in place. So, if an unexpected death of a key person happens, there’s comfort in the knowledge that a business succession plan is in place.
For more information, contact our experts.