Wills and LPAs in Business

As business owners, we spend our time planning and building our business. However, few business owners plan for this side of their lives when it comes to unforeseen health problems, accidents, or death. This is a severe mistake.

As business owners, we spend our time planning and building our business. However, few business owners plan for this side of their lives when it comes to unforeseen health problems, accidents, or death. This is a severe mistake. Your business is your legacy; however, many business owners must address what will happen if something unforeseen occurs. You should have wills and LPAs for both you personally and the directors. This is not a decision that should be taken lightly.

Without the relevant documentation, your business may be affected. Furthermore, when and if it comes time for you to sell, potential buyers of the industry will want to see wills in place. Not having these in place will affect the financial value of your business. Moreover, in some cases, employees may leave, and clients may decide to move elsewhere to reduce uncertainty. Thinking about who would benefit from keeping your affairs in order is a good idea.

In their most basic form, wills and LPAs for you as an individual and an LPA and will for the business are essential as there is no one ‘next in line’ when it comes to your business. Should something happen to you, it will enhance your business’s operational continuity and protect your personal and business assets. To safeguard all stakeholders, there is a need for the development of a robust business will. It is easier to proceed from there. Although some legal exemptions exist for personal assets as a sole trader, the consequences could be more significant. For example, there will be negative implications for joint assets, business continuity efforts, and who would actually manage your affairs if there is no plan in place.

Critical Elements of a Business Will and LPA

It is not easy to plan for your death or lose the mental capacity to make decisions about your own business. However, having a business will and an LPA is essential for succession for a small or family-run business. Typically, a company will deal with the distribution of assets to beneficiaries, appoint executors and trustees to deal with the winding-up period, and set out a business structure moving forward. LPAs can be made at any time and allow individuals (known as donors) to appoint one or more people (known as attorneys) to help them make decisions on their behalf.

To ensure legitimate succession, a business must first contain provisions dealing with the appointment of executors, and these executors are responsible for collecting the assets of the business, paying any debts, and passing the business profits to the intended beneficiaries. Secondly, the will must contain provisions dealing with the appointment of trustees. The trustees are responsible for ensuring long-term business compliance with the business will and the will terms, such as the trust or executor appointed. The will should also contain business provisions. These business provisions depend on what the business operates as, the tax status, and the number of business owners, as they will all affect the operation of the business after the date of death. The choice of business provisions includes discretionary trusts, interest interest-in-possession trusts, and business interest trusts. Attorneys must decide whether to transfer or sell the business activity in line with the business provisions. If there is no mention, they must manage the business with the business owners who own it with the same proportion of control. Finally, the LPAs must be certified and signed by the associated professionals to be enforced. Different from the two wills already mentioned, there are two different types of LPAs which the business owner needs to consider using the various parts of the business documents, and this is about the business operation to make other business decisions. The first is the health and welfare LPA, which deals with decisions about the donor’s personal welfare. The second is the property and financial affairs LPA, allowing the attorney to decide about the donor’s property and money.

Although not all of the business provisions above will be needed for every business owner, they demonstrate the importance of having a business will and LPA provisions that cater to the correct business structure and requirements. The more detailed a business owner is in preparation for the succession, the smoother the continuation of business activities will run. To ensure the continued operation of your business activities in such an event, both a business will, and LPA must be set out appropriately and as simply yet clearly as is needed to provide legitimacy to third parties.

Benefits of Having a Business Will and LPA

Suppose you own a business and rely heavily on an entrepreneur, company leaders, or family business heads for a business’s survival and well-being. In that case, you should think about a business will, a lasting power of attorney (LPA) in the form of a property and affairs LPA, or, most commonly, a financial LPA and either a general or an advanced directive setting out the business owner’s wishes. As a last resort, a shareholders’ agreement could also include a term setting out the business owners’ intentions regarding continued business management if such time comes. Business owners — big and small — should consider preparing or updating their wills and entering into LPAs. There are various benefits to implementing an effective will and an LPA, such as stakeholder confidence in the arrangements, business continuity planning, peace of mind for the business owners and their loved ones, and protection of a business’s value. A will and an LPA can also be essential in facilitating the decision-making process and minimizing delay if a business owner dies or becomes incapacitated. They can also have significant implications on what happens to the estate that a business owner leaves behind. As well as transitioning following a downside event, getting prudent planning in place during good times means integrating a business will and LPA into a business’s corporate governance framework to flag that stakeholder interests are being considered carefully. Consider an up-to-date business will and LPA as essential parts of the governance framework to protect stakeholder interests. It is vital to work with a professional to ensure that a will or an LPA is validly drawn up and considers a business’s unique circumstances and nuances.

Implementing and Updating Wills and LPAs for Business Success

As part of a business continuity plan to ensure the smooth continuation of your company in circumstances such as these, the implementation and periodic review of wills and LPAs is crucial. Here’s what you should consider when drafting and amending these documents:

Drafting a Will and Lasting Power of Attorney: Before drafting these documents, seek legal advice and/or use a legal professional to draft a will correctly. If you fail to make a valid will, your estate may not be distributed according to your wishes. You must be of sound mind and at least 18 years old to make a will. You must be 18 years or older and have the mental capacity for an LPA. Will: You can draft your will through a Phoenix Estate Planning. It is possible to draft your will online or by using a DIY will writing kit, but this option could lead to incorrect drafting of your will, meaning it will be void. If an error is made in your will, you will not be able to rectify this once you have lost mental capacity. At least two witnesses who are neither beneficiaries nor their spouses must be present when you sign your will. LPA: An LPA specifies who will manage your financial and/or care matters should you lose capacity. Two LPAs are available: financial decisions and personal welfare.

Periodic Review of Will and LPA: It is essential to review your will frequently to reflect significant changes in your personal life or finances or if there are changes in company ownership. For instance, your business may change to a partnership, sole ownership, or employee ownership. Wills should also be amended if relevant taxes or laws change.

Communication of your will and LPA is equally crucial for full organizational transparency. Employees and potential investors should be aware of what’s in your will so that everything is clear about the future of your business. A will is a public document that anyone can access, although you can post a notice to notify creditors or claimants. An LPA, however, restricts information only to be viewed by parties adequately designated by you. Digital storage platforms can facilitate easy access to your will and financial and/or care LPAs. This software provides secure digital storage for individuals to access the deceased’s financial and legal information.

Case Studies and Examples of Effective Business Continuity Plans

Case Studies & Examples

This section uses case studies to illustrate how some businesses have overcome challenges, thanks to themselves and the law. These stories are based on real ‘client’ experiences, with minor details omitted to retain confidentiality. Several of the clients have been kind enough to add their valued commentary, which is in italics.

Case Study 1: Colin Mary had been the sole director of her business — a busy flower shop with five employees. She had always meant to make a will but never got around to it. One busy Saturday morning, Mary died of a sudden heart attack. Although the application for the right to administer her estate was straightforward, Mary’s death left her business in confusion for some months. As Mary’s closest relative, her husband Colin became her legal heir upon her death.

This obviously had implications for the ownership of the business, and the five employees became concerned for the future. Such was the worry about the company on the part of her relatives and employees that the shop was forced to close for two months. When an approach was made to those who had expressed an interest in the shop, the long-term workforce members, the view was unanimous: ‘I think, were she here, that’s what Mary would have wanted. We were all workers together and knew each other inside out.’

More details go to Phoenix Estate Planning or call 0114 244 1990