James McMullan proposes five tips for helping sole traders prepare their businesses and estates for life after death.
Treat succession planning as a process rather than a one-off
Sole traders need to create a succession plan for their business and personal affairs. Could a staff member fill their shoes if they died? If yes, why not start training them today? Or consider entering into a partnership with them. In this case, you would need to create a partnership agreement, which, amongst other things, sets out what would happen to the business if one of you were to die or lose capacity. Sole traders must obtain specialist legal advice before entering into a partnership agreement to ensure it’s tailored to their needs.
Include your business in your will
When a sole trader dies, their entire business forms part of their estate, and they can decide who will inherit it under the terms of their will. If they do not make a will, their business will pass to someone under the intestacy rules, and their business could then fall into the hands of somebody who does not have a business mind.
Think about who to appoint as your executor(s)
Sole traders should appoint someone with the skill set to run their business, even if only for a limited time. Their executor(s) should understand the business and retain and realise its true value before it is passed on to any successor or beneficiary or sold.
Make a list of your assets – and keep it up to date!
Sole traders should make a business assets and liabilities list and keep it up to date with their will. If they update it every year, it will help their executor(s) to administer their estate more efficiently. It is important to consider any digital assets a sole trader may own and include them in a schedule of assets and liabilities.
Put a Lasting Power of Attorney in place
Death is not the only reason you may not be able to work or manage your affairs. Illnesses such as Alzheimer’s and dementia are on the rise. If you are temporarily or permanently incapacitated and therefore unable to work, a personal and business affairs Lasting Power of Attorney (LPA) will allow a sole trader to appoint someone to continue running their business or, if necessary, sell it while it still has value. You must consider making an LPA to cover this possibility.
If you are a sole trader, why not give private client partner James McMullan a call today to discuss your options?
Note: This article is not legal advice; it provides information of general interest about current legal issues.