There are many things that people are going to want to leave to their loved ones when they pass. A lot of the time, these items usually include the likes of property, funds and valuables; however, if you own a business and want to keep that business in the family, then you are likely going to want to pass on shares and ownership of your business. The probate process can be a complicated one and as such, to smooth it out as much as possible, one of the best things you can do is effective succession planning. This article is going to talk in more detail about Probate and Family Businesses and its impact on Succession Planning.
What is Probate?
To put it plainly, probate, in England and Wales, is the word which is normally used to describe both the legal and financial process which is involved when dealing with anything that makes up the deceased estate. This includes the likes of property and money, or in this case, the ownership of a business. The probate process involves proving a will is valid and also confirming who has the authority to distribute the deceased assets effectively. Before any goods can be transferred, the probate process needs to be completed, and the first step is to obtain a grant of probate.
What is a Grant of Probate?
A grant of probate is a legal document which is needed in order to access the various assets that make up an estate of someone who has passed, such as bank accounts. It is also necessary for the executor of a will to settle the debts and liabilities which are owed to people.
It’s worth noting that this document is only ever referred to as a grant of probate if a Will is involved, which if you are interested in succession planning, there should be. If there isn’t a will involved though then the document is referred to as a grant of letters of administration. It basically does the same thing, it just has a different name under the law.
When probate has been granted, it will be up to the next of kin or the executor to begin to deal with the individual’s assets. This is where good succession planning will be needed to make sure that the family business can be passed on without any further complications.
Why Can Succession Planning Be So Difficult?
One of the questions which is commonly asked by people who own a family business is why succession planning can be so difficult. It’s normal for people who own a business to want to pass it on to the next generation. A lot of issues can come into play when this happens though, for instance, it might be difficult for the senior generation to pass on the business, there might need to be funds withdrawn from the business to smooth over the transition, and the timing might not be right. Businesses also need to think about tax and whether what they are thinking of doing is the most tax-efficient thing.
What Are the Main Problems?
One of the main problems is working out how the senior generation can pass over ownership in the most efficient way possible. One of the most common methods is by gifting shares but this can be an issue if some value in the business needs to be kept to fund other things, like the continued running of the business or outstanding liabilities. A family business tends to be somebody’s life’s work and as such, a lot of their wealth is tied up in it, so when it comes to distributing assets in the will, if the whole business is simply given to one person, that might be disproportionate.
Another potential issue could be that the younger generation is not willing to take up the family business. There is going to be a lot of work involved and as such they might not be willing to take on the work which will be requested of them. Not to mention, there will be a lot of energy and drive needed to keep the business going, which is something that they might not have after a loved one passes.
Are There Any Solutions?
Yes, there are solutions available that families should consider doing when succession planning that might make things easier. One of the most prominent solutions is introducing what are known as freezer shares and growth shares. These work in the following ways:
- Freezer Shares: This is where the shares that belong to the older generation (the deceased in this instance) will be frozen. Essentially, this means that their value will not decrease or increase.
- Growth Shares: These would apply to the younger generation (or the person who is inheriting the business). The way they work is that they have an initial value of zero but then they will grow with the business in the future. They can act as a fair incentive for the younger generation to get involved with the business at such short notice.
Do You Need Help Throughout the Probate Process?
There is a lot that goes on after an individual passes away. Firstly, there is the emotional shock and the difficulty which comes with losing that loved one; however, on top of that, there are also issues surrounding how an estate should be dealt with and who will be receiving which assets. If you also throw into the mix the problems which arise when someone wants to pass on a family business, the whole situation becomes more complex than desired. As such, it may be a good idea to enlist the help of experts who will be able to provide guidance through the situation. At Probates Online, our team of experts are on hand to help you throughout what can be an incredibly difficult process. If you have any questions at all or you require any further information then do not hesitate to get in touch.