Mortality, no one really likes to think about it. Some people’s view is “what do I care? I’ll be long gone”. Others prefer to leave their affairs in as orderly a state as possible. Whichever camp you are in, legal steps need to be taken.
Do you have more wealth than you need? If so, you might want to start planning now; this might also have the added advantage of reducing the value of your estate when you pass away and in turn how much inheritance tax needs to be paid.
If so, you could begin the process, whether that’s making gifts or putting structures in place in your lifetime. Whichever route is most appropriate for you, documentation and legal process is essential to ensure the gift / structure is effective from a tax and legal perspective.
Perhaps you have a business you want to start passing down to your children or grandchildren so you can guide them initially and in time take more of a “back seat”. If this is the case it might make one or more of the following steps appropriate:
- transferring shares to other individuals and / or to a family trust created for the purpose;
- appointing new directors to the board; and
- putting a shareholders’ agreement in place.
You might have personal assets you no longer need or use and want to pass on, for example:
- transferring rental properties to a child; and
- making cash gifts out of surplus income and / or capital.
If you have shares in a private company, what happens to these shares when you die is likely to be set out in the articles of association and / or shareholders’ agreement; these provisions can be hugely beneficial if drafted correctly and combined with ‘keyman’ insurance as they can provide cash rather than shares to your beneficiaries. However, the provisions need careful attention as they can result in the loss of valuable inheritance tax reliefs if not drafted correctly.
It is common for this documentation to include a requirement for a deceased’s shareholding to be sold back to the company or the other shareholders. Understanding how this works is important so you have a clear picture of what assets will be in your estate at death.
Alternatively, you may be unable or uncomfortable starting the process now. If that is the case the next section may be more appropriate.
Succession on death
Whether you make gifts during your lifetime or not you should always make sure you have up to date Will(s) in place.
If you die in England and Wales without a Will you die intestate and specific legal rules apply. Under these rules, in all likelihood the deceased’s assets will not pass to the people they want or expect. This is one of the reasons everyone should make a Will which they should review on a regular basis as personal and family circumstances change.
Putting a Will in place allows you to set out who you want to benefit from your assets when you are gone, and potentially to do some inheritance tax planning at the same time.
It is also worth bearing in mind that life has become more complicated than it once was; these complications often mean that making a Will is even more critical. Do any of the following resonate with you:
- do you have a blended family (i.e. you’ve been married more than once; the current family unit includes children, step children, etc);
- you have assets in more than one country;
- you and your spouse come from different countries; and
- family members have settled in different countries?
If so, planning for blended families, spouses with domiciles in different countries and / or assets in multiple jurisdictions (where different, and conflicting, rules often apply on death) would be wise and is likely to reduce stressful family dynamics and cross border challenges at the time of bereavement.