King Charles’ coronation this weekend might be a symbolic gesture of pageantry and tradition, but in the eyes of the public it also sees him take on the mantle of one of the most important family businesses in the world.
But while there are centuries-old traditions in place around the succession of the monarchy, less ‘royal’ families should communicate openly and honestly about their wants and expectations for their business to ensure they develop a plan that fits with everyone’s interests. Here’s what you need to know:
Who needs succession planning and when?
For many of us, a well drafted Will is likely to be a perfectly suitable ‘succession plan’. However, for those who have their wealth and assets tied up in a family business, the challenge can be much greater, particularly if that business is to be passed down the generations.
The conversation can be a difficult one to start. How do you divide your wealth fairly when it is tied up in a business and one or more of your children has no interest in running the business? Family politics often come into play – and it can feel like one has to choose between children.
So, rather than put off what can seem overwhelming, it is important for families to put emotions to one side, communicate early and be open and honest about their objectives and expectations for the future. You should try to avoid thinking of succession planning as a negative process, instead, see it as a necessity to ensure the future success of your business.
How long does it take?
This really depends on the nature of your business. For larger, more complex businesses, a succession plan can take up to 20 years or more. It involves major ongoing decisions on the long-term plans for the business, how assets are owned, the role of each family member, and much more.
Beyond allowing time to create your plan, starting early also gives you more time to train and prepare the next generation. Equipping them with the necessary practical skills and industry awareness will enable you to handover the business with confidence.
Families can be complicated
Family dynamics are ever changing – even when they don’t includes princes, princesses, dukes and duchesses – and a succession plan should be flexible enough to take account of significant lifetime events such as marriage and having children, and shocks such as, divorce, bankruptcy and death.
As mentioned, well drafted Wills form the bedrock of a good succession plan. However, when a family business is involved, this should always combine with the governing documentation for the business – such as articles of association and shareholders agreements for a company, or a partnership agreement - to ensure your business ends up in the right hands.
It is also worthwhile considering the role of pre- or post-nuptial agreements when handing assets down the generations to help protect them on a subsequent divorce.
Tax implications
Tax must be considered carefully as part of any succession plan as tax law is subject to constant change and scrutiny. As it stands, businesses can get inheritance tax relief on business property. However, the availability of the reliefs can change with the situation ‘on the ground’. Capital gains tax must also be considered when passing assets down the generations.
Understanding tax is no easy feat and it is always best to seek expert advice for clarity.
Getting the right advice
You may wish to seek legal advice at the very start of your succession planning, getting a facilitator to support your early discussions. By involving a specialist early on, they can get a clear picture of your business and circumstances to ensure you have the right agreements in place to protect your family and business.
The Thrings Private Client team are experts in succession planning and writing and the structures and documents necessary for peace of mind. We work extensively with family businesses and look forward to assisting yours or those of your clients. Get in touch to find out more.
