Note: This information is applicable to Limited Companies or Partnerships. The examples illustrate a two-partner business but are also applicable to multiple shareholders/partners
Each Director leaves their share of the Business to their Beneficiaries via their Will.
Consequences to Director A’s Beneficiaries
Consequences to Director B
|Beneficiaries will now own part of the company which they may not want to run.
Share of company is now part of Beneficiaries’ Estates and therefore is at risk from divorce, remarriage, bankruptcy and long term care.
If Beneficiaries decide to sell the business the proceeds will enter their Estates creating a potential IHT liability on their death.
|May not want to run company in partnership with Director A’s Beneficiaries.
May not have the funds to buy out Director A’s share of the business.
Note: The effects of the above problems would increase considerably if the company share is a minority holding.
Perhaps you have made some provision for this eventuality.
You may feel that you have prepared for the worst and taken out sufficient Life Cover to protect all parties’ shares of the business. You may even have had the presence of mind to set up a Company Will and a Cross Option Agreement.
This would ensure that the surviving business partner(s) has the right to buy out the deceased’s share of the business and the proceeds of the life assurance policy could be paid to the surviving spouse or Beneficiaries in exchange for their inherited share of the business. Equally, the surviving spouse or Beneficiaries would be able to exercise their right to sell their share of the business to the remaining business partner(s), in exchange for either the market value or an agreed amount, covered by a life assurance policy.
Please note, the Financial Conduct Authority do not do not regulate some forms of Trust products and services.