As a business owner it's vital you adequately plan for the future of your business and that means making sure your assets and operations are looked after if you become unwell, have an accident or die. Estate planning isn't a nice to have for business owners. It's an essential piece of equipment in your business tool chest.
Let me tell you a story that's true.
On the 2nd January 2020 the unimaginable happened to the Simpson family.
At 7pm their mum, wife, matriarch and doer of all things had a massive heart attack. Out of the blue. Unexpected. Unplanned. Without warning.
By 8pm she was on life support in the intensive care department of an inner-city hospital.
Friends and family were called. Staff were called. Meetings were cancelled. Plans were made.
In the midst of the most traumatic time of their lives, when Veronica's people needed to give her their everything - they were scrambling, trying to work out what to do with her manufacturing business if (and when) the worst would transpire.
Five long days later Veronica died.
She was 46.
She was a mum.
She was a wife, a daughter, and a friend.
She was a business owner.
What she wasn't was a will maker.
What happens to my business if I die without a will?
As a sole director/shareholder Veronica didn't have the safety net of a business partner or other shareholders to step in as the legal representatives for her business. Without a will nominating a legal representative for her estate there was nobody legally authorised to act for her estate (willing and able does not constitute legal).
As per the rules of intestacy her family had to apply to the courts for letters of administration which gave them the ability to nominate a legal representative for her business. This process took several months.
In those months, without a legal representative, things started to unravel. All business bank accounts were frozen, employee contracts and lease agreements ceased to exist, stock sat on the docks unable to clear customs, retailers got scared, customers became disgrunted, staff walked, creditors started circling.
Despite their best efforts to stay afloat, within a few short weeks what had been a thriving enterprise was worth next to nothing.
With an estate plan (and a good succession plan) Veronica's family would have been going through the most unimaginable time of their lives - but the final memory they had wouldn't have been trying to keep her business from sinking.
What difference would an estate plan have made?
An it's absolutely base level an estate plan enables you to specify who you want to make legal decisions on your behalf - including who has the authority to manage your business and personal affairs in the event of your death - immediately.
In addition an estate plan provides the opportunity to appoint a power of attorney who can manage your business affairs on your behalf if you become incapacitated.
What happens to my Pty Ltd Company if I die?
Businesses run under a Pty Ltd structure will continue to exist after your death, however how this happens depends on yoru individual circumstances and the documentation you have in place.
If you hold shares in your company your constitution or shareholders agreement may specify what is to happen in the event of a death (ie other shareholders can purchase shares from your estate, your estate takes control of the shares, the company brings in new shareholders, or the company is wound down or sold).
If you were a director of the company a new director may need to be appointment or if you created a succession plan in advance the company may be able to contine operating with little impact.
What happens if I have a business Partnership and I die?
Partnership Agreements should outline what happens in the event of one partner's death. Common arrangements include the surviving partner purchasing your share of the business, your estate taking over your share of the partnership, bringing in a new partner or winding down the business.
What happens if a sole shareholder or sole company director dies?
Usually if someone is the sole shareholder of a company they are also the sole director. In this case their shares form part of their personal estate and can be distributed to a beneficiary of their choice and the legal personal representative (the executor of their will) can appoint someone as the company director to continue carrying out the company's business (they can also appoint themself as the director).
Often the value of company set up in this way may be closely linked to the services performed by the business owner, meaning if the owner were to die the value of the company would be significantly impacted.
Can you leave any kind of business as an inheritance?
The ability to leave your business to a beneficiary depends on the type of business you operate. If you run a business such as an online retail business it's highly likely someone inheriting your business could easily pick up where you left off.
However many businesses require the owner to hold certain licenses or qualifications. It's worth considering this in your succession planning and discussing it with us at the time of making your estate plan.
If you own a company*, it's important to sit down and plan your estate to protect your hard work if you were to die or if you were unable to continue operating due to illness or injury.
Estate planning is more than leaving your house and antique coin collection to your kids - it's about protecting the people you love and the people you have a duty to look after.
*if you operate a business as a sole trader a different set of legalities apply. You can find out more at THIS blog post