Keeping it in the family – succession planning for family businesses

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With everything that’s going on in the world right now, succession planning may not be at the top of your current list of priorities if you are the owner of a family business. However, ensuring that you have a Will in place can bring peace of mind that your assets will be distributed as you intend. In the absence of a Will, your estate, including the family business will be distributed in accordance with the intestacy rules.

An up to date Will ensures that your business will remain in safe hands whilst also providing for those who may not benefit directly from the business.

Good communication is an important part of effective succession planning and points to be addressed include the following:

  • allocating responsibility for the business, its structure and the roles of those involved
  • the potential need to set up trusts
  • who is to receive an income or dividend and whether others are to be brought into the management or ownership structure
  • how any assets outside of the business are to be distributed and how any beneficiaries outside the business are to be provided for
  • next steps if there is no suitable successor
  • tax implications, such as the availability of Business Relief and its effect on any Inheritance Tax liability.

Having taken all these issues into consideration, a coherent succession plan can be established.

Lasting Powers of Attorney

In addition to a Will, a family business owner may wish to sign a Lasting Power of Attorney (LPA) to appoint an Attorney to make business decisions should they lose the capacity to make such decisions for themselves.

An LPA enables a person who has mental capacity (the Donor) to choose another individual or individuals they trust (the Attorneys) to make financial decisions on their behalf. It is possible to create two distinct LPAs, to manage personal assets and business assets separately if that is considered the most appropriate solution.

LPAs can play an important role in ensuring business continuity and avoiding unnecessary delay or exposure of the business to risk.

Registering an LPA well in advance is essential to avoid having to make Court applications for a deputyship order which often is limited, costly and time consuming.