It is of vital importance for everyone to ensure that they have planned for their future. Where a business is involved, consideration should also be given to understanding the importance of succession planning and how it affects one’s business.
A solid succession plan cannot only assist your loved ones upon your passing, but can also drive growth, reduce taxes, and establish plans for your retirement.
When it comes to Sole Traders, those who run their own business in their own name and not through a company or partnership, it is important to note that the law doesn’t distinguish between business assets and personal assets. This means that upon death, a sole traders business assets will form part of their personal estate.
One of the main considerations when looking at succession planning is inheritance tax. A sole trader may need to consider tax planning as their estate may exceed the inheritance tax threshold. This is usually caused by business assets and personal assets being combined.
A sole trader will need to think about what will happen to the business upon their death. If the business consists only of the sole trader with no employees, then is likely to come to an end. However, if there are employees or customers relying on the business, then considerations need to be made. It is often thought that family members can simply continue the running of the business, but this is not the case.
When the sole trader dies, their bank accounts, personal and business may be frozen as soon as banks etc are made aware of the death. This means that funds cannot be paid into or out of the account.
This could be a major issue if, for example, employee’s wages need to be paid. It is unlikely that personal representatives of the deceased will be able to operate the bank accounts until they have obtained probate, which could take a minimum of six months.
STEPS TO TAKE TO SECURE THE FUTURE
Sole traders need to carefully review their business to ensure that if they were to die, the business can continue to operate successfully, or there is a plan to bring the business to an end. This may result in the restructuring of the business.
It is highly recommended to seek expert legal assistance when looking to secure the future of your business to avoid unexpected consequences for your loved ones and for the business itself.
If you would like to discuss any points in this article further or are looking for legal advice relating to the future of your business, please contact our Corporate and Commercial team at Spire Solicitors LLP on 01603 677077.