When your business becomes a family matter

For those with family businesses, typically, the main goal is to grow the business and protect it for the family.

Trusts can work alongside a family business in order to provide protection for the family and there can be tax advantages.

A Trust is a legal agreement created by Deed including:

• The Settlor (the person creating the Trust);

• The Trustees (those who will manage the assets inside the Trust);

• The Beneficiaries.

Trusts can be created either during your lifetime or following death and there are different types of Trust.

There are many reasons why an individual may create a Trust, for example:

• Succession planning (business interests and personal wealth);

• Potentially reducing certain payments of tax i.e. inheritance tax, capital gains tax (CGT);

• Protecting certain assets (i.e. from creditors or even divorce proceedings).

• Trusts can give rise to tax, particularly when assets within the Trust are disposed of or transferred.

• Trusts can be useful where marriage is on the horizon. In this situation, the business (or part of it) could be placed into a Trust before the marriage. Once the Trust is executed, legal ownership of the assets placed in the Trust transfers from the individual to the Trust itself.

At the time of contemplating marriage, other arrangements such as prenuptial agreements may also be entered into as a way of protecting the family business.

Although most people will typically want to grow the business for the benefit of themselves and the next generation, Trusts can also be used for the sale of the business.

We have been involved with numerous sales of family businesses in order to ensure that structures are in place to protect the business for the family members and thereafter mitigate the tax liability on the eventual sale. Trusts can be structured to extend the availability of Entrepreneurs Relief, particularly where members of the family are involved in the business and hold shares.

For other clients, Trusts have been used to hold shares in the family business which in turn can be used to fund school/university fees and other expenses for the grandchildren. There can be financial and practical advantages to these types of arrangements.

Preparing a Trust requires careful consideration and it is imperative that legal and financial advice is obtained before creating a Trust.

The Private Client team at Ward Hadaway regularly advise clients on the creation of Trusts in connection with their businesses as well as estate planning matters for their personal estates. We regularly work with professional advisers to provide joined-up advice to our business clients to provide protection for them and their families.

For more information on the issues raised by this article, please contact Andrew Evans at [email protected] or on 0113 205 6751.

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