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Estate Planning for Company Directors

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FDR Law recently acted on behalf of a client (who we shall name Mr Smith) in preparing a Will. Mr Smith is a director and majority shareholder of a private limited company. As part of planning his estate Mr Smith wanted to ensure that his interest in the company passed in accordance with his wishes in the event of his death.

The company had been in the family for many years and Mr Smith wished to ensure that his children continued to benefit from the company after his death. However, given their age and lack of experience he was unsure that they would be ready for the responsibility of owning the majority shareholding. This can often be a concern for those with family businesses as they wish to ensure both that their family can enjoy the benefits of the business whilst ensuring that whoever takes over the business are capable of running it efficiently.

It was Mr Smith’s intention that any significant influence his children would have over the company should be held back until they were more mature had become more knowledgeable of the running of the business.

We discussed several options with Mr Smith who ultimately decided to include in his Will a gift of his shareholding into a discretionary trust.

Effectively, on his death Mr Smith would gift his shares to the trust, for his appointed Trustees to run for the benefit of his children as the trust’s beneficiaries. He appointed two of his fellow directors and minority shareholders in the company as the Trustees on the basis that their knowledge of the day-to-day affairs of the company would be of benefit when administering the trust.

As a discretionary trust, Mr Smith’s children would not have any automatic right to benefit from the shares (whether this would be in the form of sale proceeds or any dividend payments) nor to utilise any rights as a shareholder. Instead, it would be at the discretion of the Trustees to make any payments out to the children from the trust funds and to utilise the shareholder rights on their behalf.

The terms of the trust also granted Mr Smith’s trustees the right to appoint all or part of the trust capital, in this case referring to the underlying shareholding, for the benefit of either or all of the beneficiaries. This allowed for the possibility that as his children became more involved with the company the trustees could, at their ultimate discretion, grant some or all of the shares to them directly.

There is no one-size-fits-all approach to planning the succession of a business and there may be different approaches which would suit your wishes. At FDR Law our Private Client team have the skill and expertise required to ensure that your wishes are met. If you have any questions or are unsure how to plan your estate or the succession of your business, take advice and let us clarify matters for you.

For more information on Wills, Inheritance Tax, Estates, Trusts, Powers of Attorney or Court of Protection matters, contact Stephen Mackellar on 01925 230000 or email Stephen.Mackellar@fdrlaw.co.uk