Effective estate planning for business owners

When you own a business, an effective estate plan can be integral to ensuring that you have control of your assets. Uncertainty in the business world is common. That’s why effective estate planning can be really important to help minimise any risks.

What is estate planning?

Estate planning at its simplest is planning ahead and controlling what happens to your estate. It’s a tool to ensure that you can protect your loved ones if you were to pass away. Estate planning helps to counteract uncertainties over what would happen to your assets if you were no longer around.

If you have a spouse, young children or any dependants who may be vulnerable, estate planning makes sure that they are protected. In addition to this, if you are a business owner it can also help to protect employees, shareholders and the keep the business running.

Who should have an estate plan?

A lot of people believe that only wealthy individuals need an estate plan. However, your estate consists of all the assets that you own and control. This includes any property that you own, including your house, your bank accounts, any jewellery you own, your business interests as well as your debts.

Estate planning isn’t just about the value of your assets. It also incorporates a protection plan for your loved ones if you were to pass away. This includes who will take care of your children, how to pay for education and what happens to any outstanding debts. In addition to this, your estate plan can also include healthcare decisions in the event that you are no longer able to take care of yourself.

Most adults will benefit from effective estate planning, especially if you have a spouse or family.

What happens without an estate plan?

When you don’t plan what happens to your estate, it doesn’t affect you, but your loved ones. Without an effective plan in place, the distribution of your assets can be a costly and time-consuming process. This can be particularly stressful during a grieving period.

With no estate plan in place, it could lead to the undesired guardianship of your children too. If you die without a plan in place, then your assets are distributed according to the rules of intestacy. This means your partner may receive nothing and spouses may not receive enough to protect them. The government essentially decides how the assets will be distributed, which can involve paying a lot more in tax.

The benefits of effective estate planning

Having an effective estate plan in place can help to protect your family and give you peace of mind. You can decide how your estate is paid and who you would like the money to go towards. It enables you to plan ahead for your children’s education and future as well as make plans for other people in your life that might need looking after.

In addition to this, it can help mitigate the effect of inheritance tax so that your family get more access to financial support.

How to get started

It can be really difficult to think about what would happen when you’re not around. However, in order to protect your family, estate planning is the way forward. Whilst it can be time-consuming to do alone, you can get help with a financial advisor or legal advisor.

Will writing

Making a will can be a good start to your estate planning. If you pass away without having a will, then the rules surrounding your estate are generally inflexible. With a will in place, you can determine who gets what and how it is distributed amongst your loved ones. It can also help decide who will be in charge of organising your estate, so you can name someone you trust to execute your will.

A will can also be used to tell people about funeral arrangements too and can be used by your family to make life a little easier during a difficult period.


Life insurance

A life insurance policy can be used to provide additional financial support for your family. Life insurance can be useful when you have a mortgage, outstanding debts or to counteract the payment of inheritance tax. It can help your family to stay financially afloat after the loss of a loved one. It gives them time to adjust to a different financial situation. A life insurance policy can be a significant part of estate planning.

If there are children involved, it can help to pay for childcare if the remaining spouse needs to go to work. It can also help to provide help around the house, cover transport and help your family maintain their standards of living. In addition to this, the money can be used to pay off the mortgage or outstanding debts.

Inheritance tax

Estate planning and inheritance tax come hand in hand. Inheritance tax (IHT) planning is important to ensure that your family get what you intend without having to pay substantial tax. In fact, you don’t have to be wealthy to be liable for IHT. Up until 20/20/2021 the threshold to be liable for IHT is £325,000. This includes all your assets, including your house, other properties you own, jewellery, boats, personal property, investments, your pension, life insurance and any businesses that you own or have an interest in.

Anything below the £325,000 threshold is not taxed. However, everything over and above this is taxed at the higher tax rate of 40%. Any financial gifts that you have made within the last seven years of your death are included in your threshold too.

Your family will need to pay inheritance on your estate for anything over the threshold. This can cause a substantial dent in the funds you provided to protect them.

Counteract the cost of IHT

If you can afford to make gifts to your family during your lifetime, it reduces the value of your estate. In turn, the inheritance tax you’d pay will go down. You’re allowed to give £3000 a year, without any IHT liability.

It may not always be possible to make gifts to your family, or you may wish to provide for them after your death. In which case, a life insurance policy may be a better option.

Put your life insurance policy in a trust

Your life insurance policy can be written into a trust to counteract the cost of IHT. You do not pay tax on the lump sum paid out from a life insurance claim. The money can also be used to counteract any IHT paid on your estate.

A discretionary trust offers flexibility and means that you can decide who your beneficiaries and trustees are. The trustees are the legal owners of the trust and decide what happens to it, they can help to distribute the funds as you requested to your chosen beneficiaries.


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Safeguarding your business

As a business owner, part of your estate planning will include what happens to your business. You will want to make sure that your business assets are passed on in the right way. As the loss of a business owner can have a big impact on the surviving business partners as well as your family.

If your beneficiaries were to inherit your business, would they have the right experience to run it? You may wish to pass on the business to other members of the family. However, if this isn’t the case a life insurance policy for the business may be a better option.

You can invest in key man insurance or shareholder protection where the money is used to go back into the business or to your remaining shareholders. It can mean that when the share falls into the estate, your family can sell the share at a fair price.

Protecting your plan

Over time, economic and personal conditions may affect your estate plan. Economic conditions and tax laws can change as well as inflation and account values. This can change the way that your estate is handled over time.

It’s important to review your estate plan regularly to make room for adjustments. It is also important to review your plan during changes in your life. This includes a marriage or divorce, having children, income changes, a death in the family or a new business venture. It may also be worth looking at your plan when you retire or if you suffer from health issues.

Effective estate planning helps to protect your family if you were no longer around. It’s important to put a plan in place to ensure that your family have enough money to survive, as well as ensuring that your assets are given to who you wish. Estate planning also helps to minimise inheritance tax so that there is more available for your loved ones. Find out more about life insurance today and how we can help at

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Effective Estate Planning for Business Owners - Business Cover Expert
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Effective Estate Planning for Business Owners - Business Cover Expert
Learn how to create an effective estate plan to protect the future of your family as well as help to minimise inheritance tax.
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Business Cover Expert
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