No will - so what for businesses?

There is a fairly widespread, misplaced belief that it’s unnecessary to go to the trouble and expense of preparing a Will.  The reluctance to address the uncomfortable fact that we are all mortal is reinforced by the apparent need to arrange a meeting with a solicitor and to pay for the privilege of doing so.

In business, we are all very used to existing in a fast-paced, digital environment.  So it can seem absurd that the rules that apply to the making of Wills (and what happens if there isn’t a Will – known as intestacy) have their origins in the Victorian era. 

While proposals to bring the rules into the modern age may be coming forward; a wholesale change to the law is still some way off.

Why make a will?

The problem with not making a Will is that the rules of intestacy - the legal rules that apply where a person dies without a valid will - are rigid, and have been drafted to deliberately restrict the beneficiaries to specific classes of family members.  An individual’s wishes, in terms of who may benefit from their estate and how, become irrelevant.

Of course, there’s potential for this to have unwelcome ramifications in relation to the distribution of the deceased’s personal assets; but where commercial interests are involved, it can leave a business in a sensitive and difficult position.

The Intestacy Rules

Under the current rules, if the deceased is survived by a spouse and children, then the spouse will receive the first £250,000 of the estate.  The remainder of the estate will be split equally, with one half going to the surviving spouse and the other half being divided equally between any children of the deceased.

If there is no surviving spouse, then the deceased’s children will receive the entire estate.  Where there is no surviving spouse or children, then the estate will pass in accordance with the intestacy rules which sets out an order of priority, starting with the deceased’s parents and ending with the Crown if no family survive.

For more information on the intestacy rules, please see our intestacy rules flowchart.

Impact on Businesses

The impact of intestacy will vary depending upon the set-up of a business.

If a sole trader dies intestate, there is no distinction made between the business owner and the business; and the assets will be distributed in accordance with the rules of intestacy and the business will technically be brought to an end.

Partnerships or limited companies are separate legal entities and in the event of a partner or shareholder dying without a Will, the intestacy rules will again be applied; and the deceased’s share of the business or shareholding will be distributed to surviving family members.

So imagine starting the new working week having to deal with the devastating loss (both personally and professionally) of a valued and integral member of your organisation.  If they died without a Will, you could also find you will have a new and unexpected business partner or shareholder, and potentially someone who is either unwilling or unable to engage positively in the future of your enterprise.

The Solutions 

Businesses plan for a range of scenarios, risks and opportunities.  The death of a partner or shareholder is an event for which every business should plan and make appropriate provision.

In the case of a partnership with two more partners, the partnership will automatically cease on the death of a partner unless there is a partnership agreement which sets out other agreed provisions.  The agreement can include provision for the partnership to buy out a partner’s share of the business from their estate in the event of their death.

A limited company will continue after the death of a shareholder and the Articles of Association should make provision for the transmission of shares.  But the best way to control succession is through a shareholders’ agreement that on the death of a shareholder, their shares cannot be transferred to a third party.  Instead they are transferred to the remaining shareholders or bought back by the company; and are not capable of being dealt with under the intestacy rules without the consent of the surviving shareholders.

What next?

So it may be time to do two things (if you haven’t done them already):

  1. Make a Will:

Of course this can be put off to another day; but delaying uncomfortable or difficult decisions is generally not the hallmark of a successful businessperson.  In reality, the decision to make a Will and to include how you wish your business interests to be treated when you die will be a sound and cost-effective investment; and may well save your family a good deal of anxiety at a difficult time.

Contact Michael Alden, Head of Trusts and Estates, if you would like to make a will.

  1. Sit down with your partners and shareholders to ensure you have procedures in place to protect your business in the event of a shareholder or business partner dying intestate.

Contact Andrew Betteridge, Head of Corporate and Commercial, if you need to speak to your partners and shareholders.

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