Where will the cash come from to provide for your beneficiaries

Unpalatable as the thought may be, but to what extent have you put plans in place to ensure that your financial affairs are in order should you pass away unexpectedly?

Throughout life there are often certain milestones, perhaps marriage or the birth of a child, that prompt action to make plans for the future, such as to make a will or take out or top up life insurance.

Documents are stored safely and often forgotten, not to be refreshed as circumstances change.As an owner manager, you may have a will that clearly sets out who will inherit the shares in your business and so you may consider that no further thought or action is needed.

However (and assuming the articles will allow it), will it be in the best interest of the business (or your fellow shareholders) for your shares to pass to your named beneficiary? We often see circumstances where the answer is a resounding “no” and the successful future of the business is jeopardised as attention that should be focussed on driving the business forward in the difficult period after your death is focussed on what can become, in extreme circumstances, messy wrangling.

Disagreements from the past can re-emerge, the management team lack necessary direction and creditors and funders become unsettled. In the meantime, the value of the business falls and the financial security that you thought was in place for your loved ones is not assured.

Whilst this scenario may seem extreme, sadly it is not uncommon. There are a number of solutions. If you have fellow shareholders then a shareholders’ agreement is essential to spell out arrangements that you have all agreed to. Typically, this involves giving the other shareholders first option to purchase your shareholding, based upon an agreed valuation mechanism.

Problems can occur if the other shareholders or the company does not have sufficient available cash to buy (in the company’s case, purchase and then cancel) the shares. One solution is specialist life insurance that provides a cash sum on death, in a tax efficient manner. By choosing the appropriate provider, policies can be tailored to accommodate particular circumstances and also cover problem areas such as fellow shareholders based overseas (more difficult but still possible to achieve).

This is a specialist area and so choose your provider carefully. There is inevitably a cost however if it gives you peace of mind and also guarantees financial security for your beneficiaries do not dismiss what could be a very effective tool for managing one aspect of your business and life.

If you are interested in discussing your options, please contact David Clift on 0161 245 1000, who can introduce you to appropriate specialists.