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Where there’s a Will, there’s a way

Death and mental incapacity are two subjects that everyone would probably rather not think about. However, addressing these subjects early on and including them as part of succession planning for a park business will save significant time, money and stress in the long run.

In this blog I cover the very important issue of estate planning and the preparation of Wills. In my second blog I will tackle the topic of mental incapacity to include considering Lasting Powers of Attorney and other related mental capacity issues.

I often find that the best way to discuss estate planning is to use a worked example. I therefore set out below information about a fictitious couple in the holiday and home parks industry who are considering how to plan for the future:

Mr & Mrs Smith are aged 70 and 69. They have established a successful park homes business which is incorporated as a limited company called Park Homes Limited. Mr & Mrs Smith each own 50 of the 200 shares in Park Homes Limited. Their son also owns 50 shares and he is the manager of the business. The remaining 50 shares are owned by their daughter who does not take any part in the management of the business.

Will planning

The first thing Mr & Mrs Smith should do is to review their Wills or if no Will has been prepared start thinking about how they wish to divide their assets. It would be helpful for Mr & Mrs Smith to start by preparing a list of their assets and the values of those assets. They will then need to consider what they want their succession planning to achieve.

After undertaking that exercise Mr & Mrs Smith decide the following:

  • They want to be able to live comfortably during their lifetimes, with no financial worries.
  • As their son has most involvement in the park business, they want him to own the majority of the shares in the park.
  • However, they also want to ensure that their son and their daughter inherit from them in equal amounts. They would like to avoid any fall out between their children after their deaths about ownership of the shares in the park.
  • During their lifetimes they need the dividend income from the shares in order to continue their current lifestyle. Mr & Mrs Smith cannot therefore afford to give away any of their shares now.
  • They would like their planning to be tax efficient, but tax is not the most important issue.
  • They want to know how much inheritance tax there will be. If their shares qualify for Business Property Relief from inheritance tax, the value of the shares will not be taxable.

So, what do Mr & Mrs Smith decide to put in their Wills?

  • The first thing Mr & Mrs Smith decide to do is to ensure that, whichever of them outlives the other will be provided for and will always remain comfortable.
  • They then decide to give their son an option to acquire their shares. This would mean that he could continue to run the park and also that he would own most of the shares. However, he would have to pay a fair amount for the shares, so he and his sister will receive equal value overall.
  • They also choose to divide the remainder of their estate equally after their death, so the two children inherit in the same proportions.

What would happen if Mr & Mrs Smith did not make a Will?

Many problems would arise if Mr & Mrs Smith did not have Wills including:

  • If Mr & Mrs Smith were not married, they would not inherit from each other.
  • It is likely there would be considerable difficulties for the family in dealing with the shares
  • If this was a second marriage for Mr Smith or Mrs Smith and no will had been made, the current spouse would inherit in priority to children. Children from the first marriage therefore might not inherit anything at all.

Plan ahead

There are very significant benefits to planning for succession through wills. This is often best achieved through consulting with family, with co-owners of the business and with advisers. As with any plan, it is equally important to regularly review it in particular if circumstances change. In summary:

  • Make a Will
  • Review your Will every five years (or when circumstances change)
  • Decide how to pass on assets first, then plan the most tax efficient method
  • Seek professional advice from a lawyer and accountant.
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