What Is An Executive Will?

An executive will is a will that has been specifically designed for business owners and covers a wide range of details that a normal will wouldn’t consider or include. 

It details all your personal and business assets and provides a clearly defined plan for what should happen in the event of your death.

An executive will is different from a conventional will as it addresses some challenges that are unique to business owners.

• Make sure your business assets are inheritance tax-free
• Ensure the business can continue to trade
• Leave the best people in charge of your business assets
• Save tens of thousands of pounds in inheritance tax

Company shares

Most unlisted trading companies in the UK have a specific inheritance tax-free relief called business relief, which allows the shares to be passed down free of inheritance tax. 

As attractive as this is, many business owners need to understand how it works, and the inheritance tax-free element can be easily lost without a laid-out executive will.

Leaving your shares to a spouse is easy for most basic wills; however, it isn’t tax-efficient for your children in the future.

Should your spouse inherit your shares, they may sell them and convert them to cash. This would then form part of their estate, and eventually, when it is left to your children, it will be fully taxable for inheritance tax at 40%.  An executive will would use a trust called a business relief trust and protect your family’s inheritance. 

Upon death, this would be created, and the shares of your business would be transferred to the business relief trust and not directly to your spouse. Once in the trust, they could be sold, and the funds would then go back into the trust, which keeps them outside of the estate and away from inheritance tax.

Your spouse would still have full access to the trust and the funds within it, and any funds that remain upon their death could be passed to your children completely free of inheritance tax. 

Business Lasting Power of Attorney (LPA)

Although an LPA doesn’t form part of your executive will, it is usually arranged simultaneously. LPAs are common; however, business owners must give them extra thought.

It is common to make a spouse the designated person in an LPA; however, you need to consider if they are the right person to run your business in the instance that you can’t. In most cases, this role would be better provided by a colleague or business partner who works in the business. This is something that can be detailed in an LPA.

Your spouse can manage your personal financial life, for example, and your business partner can manage your business assets. It might seem obvious, but many people fall into the trap of simply making their spouse the designated person of their finances in the event of death or ill health, even though there might be more diligent options.

An executive will still cover all of the details a personal will covers; however, it also takes into account business assets and the best way to manage and treat them in the most tax-efficient way.

To find out more about executive wills, arrange a free call with one of our estate planning team. We will talk you through the unique challenges business owners should consider and ensure you have a will and succession plan that suits you.