How to deal with Business & Agricultural Assets in the Will

How to deal with Business & Agricultural Assets in the Will

Or...Protecting Business Assetscoordinated with the personal ‘Death Planning’ solutions.

Protecting Business Assets - Problem Mr Mrs Excess Residue Will In wife’s estateAttackable by Divorce, Creditors, IHT etc. ? Legacy up to NRB Family Trust(Discretionary) Where are the Business / Agricultural Assets going? Family TrustIIP Trust ? £325k (NRB) Value = £750k + £750k = £1.075m PERIODIC & EXIT CHARGES!

Protecting Business Assets - Solution Mr Will Value = £750k Legacy up to NRB Excess Residue Family Business Trust 1 Family Business Trust 3 Family Business Trust 2 Family Trust(Discretionary) £250k £250k £250k £125k £125k £125k Family TrustIIP Trust Family Business Trust 4 Family Business Trust 6 Family Business Trust 5 If business expected to grow may use more trusts £125k £125k £125k

Then in addition consider Cross Option Agreement

Company Wills NO PLANNING IN PLACE ABC Ltd Director B Director A 50% 50% Worse still... …What if no will at all? Director A’s estate will be subject to Intestacy Law... …who will then be entitled to 50% of ABC Ltd? Will

Consequences of no Company Will Consequences to Director A’s beneficiaries Does spouse want to own and run co.? If so with Director B? Risk from claims from remarriage, bankruptcy and/ or LTC. Spouse assets increase by sale proceeds if sells inherited share. IHT liability? Consequences to Director B Has no call on deceased share Does he have the funds to purchase? Impact of deceased death on business. Uncertain future. What now the value of his share? His assets increase if sells his share and subsequent impacted by IHT.

Company Wills STANDARD COMPANY WILL IN PLACE ABC Ltd Director A Director B 50% 50% 100% share LA Policy LA Policy LA Proceeds CROSS OPTION AGREEMENT EXECUTED Will Will 50% Share

Consequences of standard Company Will Consequences to Director A’s beneficiaries The ABC Ltd share will pass to spouse through his will. This is now part of her estate. Whilst share held IHT exempt as qualifies for BPR. On Cross Option no BPR applicable on proceeds. Spouse assessable assets for IHT now increases by Life Assurance Funds Risk from claims from remarriage, bankruptcy and/ or LTC. She could potentially lose 40% of cash proceeds from Life Assurance plan to taxman thorough IHT Consequences to Director B Will own ABC Ltd 100%. Whilst trading BPR applicable However his assets increase if sells his share and subsequent impacts his IHT – He could potentially lose 40% of cash proceeds from sale to taxman thorough IHT.

Example So combined IHT liability paid of… …£1,080,000 Director A Director B ABC Ltd £1.8m Unnecessary additional IHT liability of… … £360,000 Unnecessary additional IHT liability of… … £720,000 CROSS OPTION AGREEMENT EXECUTED £900,000 Life Assurance proceeds Director B decides to sell ABC Ltd for £1.8m. This now fully part of his estate. Director A spouse

Company Wills COUNTRYWIDE COMPANY WILL PLANNING IN PLACE Director A ABC Ltd Director B 50% 50% Will Will CROSS OPTION AGREEMENT EXECUTED ABC Ltd Countrywide Shareholder Trust Dir. A Countrywide Family Trust Dir. B Countrywide Family Trust LA Proceeds Dir. B LA Policy 50% Share Dir. A LA Policy

Advantages of Countrywide Company Will Planning Advantages to Director A’s beneficiaries The ABC Ltd share will now pass to Director A’s Family Trust through his Will. Once the Cross Option has taken place, the cash proceeds from the life assurance plan are now part of Director A’s Family Trust, not the Spouse’s estate. These funds are now protected and cannot be assessed against anyone for IHT purposes. The funds are now also protected from the risk of claims from remarriage, bankruptcy and LTC and can give Director A the peace of mind that his assets will go to who he intended.

Advantages of Countrywide Company Will Planning Advantages to Director B Director B still owns 50% of the company and the other 50% is owned by the Shareholder Trust. If Director B now wishes to sell the business, only 50% of the sale proceeds will enter his estate and the other 50% will belong to the trust. The 50% owned by the trust are protected and cannot be assessed against Director B for IHT purposes. If the business is sold, the trust funds are also protected from the risk of claims from remarriage, bankruptcy and LTC. Half of any dividends paid would be to the Shareholder Trust. These can be distributed to beneficiaries in the trust so can be used as an income tax planning tool.

Example

ABC Ltd £1.8m Director A 50% of ABC Ltd in Trust Director B share of ABC Ltd Director B Additional IHT liability of… … £0! £900,000 Life Assurance proceeds IHT liability of… … £360,000 CROSS OPTION AGREEMENT EXECUTED Director B decides to sell ABC Ltd for £1.8m. 50% of proceeds protected in Trust. 50% in Director B estate Director A Family Trust Suite

..in comparison to £1,080,000. A saving of £720,000 with the use of Countrywide Trusts

…and dependent on circumstances and appropriate planning the £360,000 IHT liability for Director B could be negated fully

How to deal with Business & Agricultural Assets in the Will