Family businesses that trade as partnerships or sole traders are being urged to plan ahead in case a founding member dies, as it can trigger rules that freeze assets.
Tax and trusts expert Gary Priest is concerned sole traders and family businesses in the region are assuming that assets can just pass down through the generations, when in fact they get put on ice.
Mr Priest, a partner at mfg Solicitors, has urged families not to leave it too late, as if a partner loses mental capacity, or dies, it is far more difficult to make arrangements.
Mr Priest is urging business partners to ensure they have a partnership agreement, along with Wills and Lasting Powers of Attorney, in place, with instructions covering what happens to assets in the event of a death.
He said: “The end of a partnership can prove a nasty shock to families already grieving the loss of a loved one. Families in business often wrongly assume that things can carry on when a partner or sole trader dies and that other members become entitled to their loved one’s share.
“It is very important for partners to put a written agreement in place now, while everyone involved has full use of their mental faculties. Just as with dealing with a will and having to apply for lasting power of attorney, this becomes much more difficult and distressing if it’s done when someone has started to lose their capability to decide matters for themselves.
“After a loved one’s death, the partnership is automatically brought to an end unless a written agreement is in place and the right steps have been taken. That means bank accounts are frozen, causing cash flow problems, HMRC issues and difficulties paying the bills.
“All the while, suppliers need paying, employees will be entitled to wages and customers will be expecting business as usual. A partnership agreement spares relatives the further heartache of trying to deal with the automatic cessation of a partnership.”
Partnership agreements, drawn up with expert advice, can determine who will be the successor, how the deceased’s interest is valued and covers potential inheritance tax reliefs and insurance arrangements.
For further advice, readers can email firstname.lastname@example.org