If you are a business owner, then the chances are you are one of the many who don’t have a Business Trust.
Most business owners in the UK don’t. Often, it’s simply because they haven’t been made aware of the risks in not doing so.
Business Trusts exist to protect your business in the event of you passing away. They also provide extra financial security for your family and help to minimise inheritance tax.
How do business trusts work?
When a partner dies, the business is placed in the trust. This means that it now owned by the trust, not the family.
Each trust has trustees appointed to manage the trust’s affairs. Quite often, this will be your business partners.
Not only does this allow the business to continue functioning normally, it also enables your spouse and family to continue receiving benefits from the business.
Furthermore, as the value of the business has passed to the trust this will enable the family to potentially make significant inheritance tax savings.
What would happen if I don’t have a Business Trust?
If you die, your share of the business passes to whoever you have named in your Will. Usually your next of kin.
This might well be fine. However, many businesses run into problems when a family member inherits. They may not have the experience and suddenly find themselves with a controlling stake in the business.
A recent survey found that more than a third of family business owners don’t trust their children to inherit. So, it seems strange that so few of them then make the effort to create a Business Trust in their Will.
Business Trusts are tax efficient
If your family inherits the business, the value will also be added to your overall estate and taxed at 40% (over the nil rate band).
Because a Trust’s assets are not legally owned by its beneficiaries, there can be substantial inheritance tax allowances claimable by your executor.
Family continues to benefit
By making your business partners trustees, the business is protected during what can be a lengthy and potentially expensive probate process.
They can then get on with running the business, whilst your family continues to enjoy the financial benefits from the business.
Now you understand the huge benefits of putting a Business Trust in your Will, you can see why it’s so shocking that the vast majority of UK business owners don’t have one in place.
This relatively simple and inexpensive process could end up saving your family a fortune and protecting the health of the business for future generations.
If you would like to find out more then please get in touch and a member of our team will be happy to discuss it with you in more detail.