How to deal with

Business & Agricultural Assets in the Will

Or...Protecting Business Assets

coordinated with the personal ‘Death Planning’ solutions.

Excess Residue

Protecting Business Assets - Problem

Mr Mrs

Family Trust(Discretionary)

Family TrustIIP Trust

Will

Legacy up to NRB

Where are the Business / Agricultural Assets going?

Value = £750k£325k (NRB)

+ £750k

= £1.075m PERIODIC & EXIT

CHARGES!

?

?

In wife’s estateAttackable by

Divorce, Creditors, IHT etc.

Excess Residue

Mr

Family Trust(Discretionary)

Family TrustIIP Trust

Will

Legacy up to NRB

Protecting Business Assets - Solution

Family Business

Trust 1

Family Business

Trust 2

Family Business

Trust 3

Value = £750k

£250k £250k £250k

If business expected to grow may use more trusts

Family Business

Trust 4

Family Business

Trust 5

Family Business

Trust 6

£125k £125k £125k

£125k £125k £125k

Then in addition consider Cross Option Agreement

Company Wills

ABC LtdDirector A Director B

50% 50%

Will

NO PLANNING IN PLACE

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?

Consequences of no Company WillConsequences 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

ABC LtdDirector A Director B

50% 50%

Will

STANDARD COMPANY WILL IN PLACE

LA Policy

LA Policy

Will

LA Proceeds

CROSS OPTION AGREEMENT EXECUTED50%

Share

100% 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

ABC Ltd

£1.8m

Director A

CROSS OPTION AGREEMENT EXECUTED

£900,000 Life Assurance proceeds

Director A spouse

Director B

Unnecessary additional IHT liability

of…

… £360,000

Director B decides to sell

ABC Ltd for £1.8m.

This now fully part of his estate.

Unnecessary additional IHT liability

of…

… £720,000

Socombined IHT liability

paid of…

…£1,080,000

ABC Ltd Countrywide Shareholder Trust

Company Wills

ABC LtdDirector A Director B

50% 50%Will

COUNTRYWIDE COMPANY WILL PLANNING IN PLACE

Dir. A LA Policy

Dir. B LA Policy

Will

LA Proceeds

CROSS OPTION AGREEMENT EXECUTED

50% Share

Dir. A Countrywide Family Trust

Dir. B Countrywide Family Trust

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

£1.8mDirector A

CROSS OPTION AGREEMENT EXECUTED

£900,000 Life Assurance proceeds

Director A Family Trust

Suite

Director B

Additional IHT liability

of…

… £0!

Director B decides to sell

ABC Ltd for £1.8m.

50% of proceeds protected in

Trust.

50% in Director B estate

IHT liabilityof…

… £360,000

50% of ABC Ltdin Trust

Director B share of ABC

Ltd

..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 Bcould be negated fully