Wills and EPAs: Making Sure Your Succession Plan Works When It Matters
When we talk about succession planning, the focus is usually on the planned handover.Who will take over the business? When will you step back? How and when should ownership pass to the next generation?
But a good succession plan also needs to answer another question: What happens if you die or lose capacity?
What happens your business if you die or lose capacity?
That is where your Will and Enduring Power of Attorney (EPA) become important. They should not sit separately from your succession plan. They should form part of it.
Your Will should reflect the succession plan
If you own shares in the family company personally, what happens to them when you die?
Do they pass to your spouse?
To your children equally?
To the child who is already running the business?
Or should they be held in trust?
These decisions can have a real impact on the future of the company.
Imagine one child has worked in the business for 15 years while two others have careers elsewhere. Leaving the shares equally between all three may be fair in one sense - but does it give the person running the business the ownership or control they need?
There isn't one right answer.
What matters is that your Will reflects the succession plan you actually want, rather than producing an unintended result.
Think about the wider arrangements too
Your Will is only one piece of the picture.The company's articles and any shareholders' agreement may also deal with what happens to shares on death.
There may also be a cross-option agreement, allowing the remaining shareholders to buy the deceased shareholder's shares and the estate to require them to be purchased, often alongside appropriate life insurance.
The aim is to make sure the arrangements work together.
If the succession plan says one thing, the Will says another and the company documents point somewhere else entirely, that can create uncertainty at exactly the wrong time.
Could a trust have a role?
Shares do not always have to pass outright to an individual. In some circumstances, a trust may provide useful flexibility.
For example, children may still be young, family circumstances may be complicated or you may want family members to benefit from the value of the business without immediately receiving shares outright.
A trust can allow assets to be held and managed by trustees for the benefit of the people you have chosen.
It is not the right solution for every family, but it is another option to consider when deciding how ownership and wealth should move from one generation to the next.
Succession doesn't have to wait until death
Your Will deals with what happens when you die, but succession planning can start much earlier. You may decide to transfer some shares or other assets during your lifetime, perhaps gradually bringing the next generation into ownership while you remain involved in the business.
This can make the eventual transition much smoother. It also means inheritance tax should be considered as part of the plan.
The objective shouldn't be to structure the future of the business purely around tax. Equally, there is little sense in putting a succession plan in place without understanding the potential tax consequences.
Lifetime gifts, trusts and what passes under your Will can all have different tax implications. Good succession planning considers:
Who should receive what
When they should receive it
The tax consequences of doing so.
The succession plan should drive the decisions – with inheritance tax considered alongside it, rather than as an afterthought.
What if you lose capacity?
For business owners, this is where an Enduring Power of Attorney (EPA) becomes important.
An EPA allows you to choose someone to deal with your property and financial affairs if you become unable to do so yourself.
For a business owner, that could include important personal assets such as company shares, property or money connected with the business.
Without an EPA, dealing with those affairs following a loss of capacity can become much more difficult.
An EPA doesn't replace you in the business
There is an important distinction. An EPA can give your attorney authority over your property and financial affairs, but it does not simply make that person a director of your company. So the business itself also needs to be prepared.
If you suddenly couldn't work tomorrow:
Who would make the important decisions?
Are there other directors?
Who can deal with the bank?
Who can sign contracts?
Who understands the finances?
Does the management team have enough authority to keep the business moving?
Your EPA protects the continuity of your personal financial affairs. Your business succession and governance arrangements protect the continuity of the company.
You need to think about both.
Bringing it all together
Succession planning isn't one document or one transaction. It is about making sure the different pieces fit together.
Who will own the business?
Who will run it?
What happens to your shares if you die?
Could a trust have a role?
Should some ownership pass during your lifetime?
Has inheritance tax been considered as part of those decisions?
Do your Will and company documents support the same outcome?
And, if you are in Northern Ireland, do you have an EPA in place if you can no longer manage your affairs yourself?
You cannot plan for every eventuality.
But you can make sure that if the unexpected happens, your family and the people running the business know what is supposed to happen next.
How Daly McCormick can help
At Daly McCormick, we help business owners and families bring the different parts of succession planning together.
That can include reviewing Wills and Enduring Powers of Attorney in Northern Ireland, considering trusts and lifetime transfers, and making sure those arrangements work alongside the company's articles, shareholders' agreements and wider succession plans.
Working with your accountants, tax advisers and other professional advisers where appropriate, we can also make sure inheritance tax is considered as part of the overall plan.
Because a good succession plan shouldn't just work when everything goes to plan.
Your business. Our legal expertise.
Dungannon, Belfast, Omagh
02887441840
Disclaimer: The information provided here does not, and is not intended to, constitute legal advice. Instead, the information and content available are for general informational purposes only.
