An important consideration for families who have built up a family business is how best to pass it on to the next generation, either in their lifetime or by a will. Here are ten top tips on how to approach making your will.
- Discuss succession with your family – the key component to smooth succession of a family business is communication. Discuss what you’re planning to do with your children and wider family so that the provisions in your will are part of a well considered and ordered transition.
- Listen to what your children have to say – as well as simply discussing matters with your children, listen to what they have to say and don’t be afraid to change your plans if those you are planning for consider them unworkable. After all, your children will be the ones who will have to run the business once you are gone.
- Choose your executors and trustees wisely – you will need to choose people who both know your family and understand the business, yet equally are not going to cause problems with your family when you are no longer around. Ideally, you are looking for one or two individuals who you trust to make decisions for the best of the business and your family.
- Consider the future ownership of the business – going forward, should the shares be held outright by your children or would you prefer to hold the shares in a family trust, thereby ensuring that there is no dissipation of ownership over the generations? Both can work, but equally difficulties can be caused if you get it wrong and so it is worth weighing up the pros and cons of both approaches carefully before making a decision.
- Consider the needs of those working in the business and those who are not working there – one of the biggest problems is how to deal with the latent conflict between those children who work in the business and those who do not and how they should respectively benefit. The ideal of fairness can be a difficult one to achieve.
- Consider lifetime planning – in addition to your will, consider whether there is anything which can be done during your lifetime. Often, a phased succession, in both your lifetime and through your will, is the best way forward for a successful transition between generations.
- Maximise tax reliefs – there are generous inheritance tax reliefs available for business property but it is important to make sure that all conditions are met.
- Know when to take a step back – it can be hard to know when to step back and let the next generation take over the day-to-day running of the business. The expertise and wisdom you have built up over the years will be invaluable at times, but equally it is important to not overstay your welcome. The next generation will need to take over at some point; it is far better to do it in a staged fashion rather than immediately following your death.
- Look outside the immediate family if necessary – sometimes the best candidate to run the business is not necessarily a family member. Know when it is right for the business to look outside your immediate family. Management should not be a birthright. The family members will often know instinctively who is the right person for the job.
- Have a family charter – one of the most effective mechanisms for bringing about a smooth succession is to have a family charter setting out a governance structure for the family and the family business. A well thought out family charter will consider succession, wills and all other aspects of the interaction between the family and family business.
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