Conversations around wills are often seen as difficult and quite personal, let’s face it no one likes to admit to their own mortality. It is easy to shy away from discussing them or to keep to yourself what they contain, and in some cases dialogue around them is avoided altogether. In the same way that many people only consider Life protection after a significant event, such as the purchase of a house, a marriage or the birth of a child, it is vital that wills are first in place and are reviewed regularly and are up to date with your current lifestyle and responsibilities.
Given this, it is particularly essential for a business owner to ensure his or her will is current and actually refers to their share in that business. If a shareholder was to unexpectedly pass away, a business has the potential to grind to a halt as shares could be tied up in probate, meaning the business could cease trading especially if these are a majority holding. This not only puts the business in jeopardy but also those employees who rely on it being solvent.
Research by Legal & General shows that nearly four in ten businesses (with two or more owners) have no life insurance policies in place to help buy the shares of a recently deceased business owner. Worryingly 57% of small businesses said this was the case within their company, and having shares tied up in probate would be very detrimental for them in particular.
Every business, no matter how big or small, needs to have procedures in place to cover every eventuality. Putting down in writing what you would like to happen with your affairs after your death is clearly a difficult subject, but once finalised you are given the peace of mind that you have done everything you could for the future of your company. Life can be unpredictable at times but the future prosperity of your company shouldn’t be.
For many, protecting a business from whatever the future holds seems like an obvious decision. Having life insurance in place for your business will help ensure that your family and other dependents have the ability to decide if they want to keep the business or sell the inherited shares, and also leaves fellow business owners and employees in a good position to move forward. However, without this in place, it would be impossible to predict confidently what would happen to a business.
Worryingly over 50% of business owners surveyed by Legal and General either had no will or did not mention their shares in their will. Although 40% said that if they were to die their fellow business owners would buy their shares, when asked further questions about how this would work in reality business owners had actually agreed very little in the way of plans to fund it.
Business owners need to be aware of the many risks that threaten their business and it is important that they speak with a financial adviser about the best ways for them to mitigate these. By having a will in place, business owners are provided with the comfort and reassurance that their shares and the future security and longevity of their business will be protected, something which will be projected onto their employees as it upon this business that their lifestyles depend.
By Richard Kateley, head of intermediary development at Legal & General