It pays to plan for the worst

Mar 16 2010 by Andrew Playle, The Journal

OVER the last few weeks, this column has looked at problems that can arise on the incapacity or death of a shareholder or director.

Using various case studies to illustrate the effect a lack of forward planning can have, we hope to have brought to your attention some of the unexpected issues that can arise.

We have discussed the possibility of a businessman having a stroke at the wheel of his new car, the practical problems faced by the owners of a nursing home company when one of them became incapacitated and also some of the legal and tax problems faced by a husband and his family on the death of his businesswoman wife.

In each of these cases, had key person insurance been in place, this would have allowed the business to raise the funds necessary to advertise for and recruit a replacement employee, as well as gain financial compensation for its loss. Permanent health insurance would have allowed the person’s family to have had the financial support they needed.

A property and affairs lasting power of attorney would have protected each individual’s business and personal affairs by ensuring that the most appropriate person was appointed to manage them while the other person was unable to do so. This, in turn, could avoid expensive court applications and court fees.

Succession planning would have helped a husband faced with the death of his businesswoman wife, and avoided the business partner having to run the business alongside numerous other shareholders. Thought would also have been given to the best structure for holding these shares so that they were protected and yet available to benefit the family, who would not have had to worry about unpalatable binding contracts for sale such as that described in previous scenarios.

If each businessman had sought tax advice, they could have built this into an overall succession plan and ensured the best advantage possible was taken of available tax relief.

Next month, Dickinson Dees launches its Protecting Your Business, service which aims to cover the full spectrum of business needs in addition to those of the individual. For more information on this or any of the issues discussed, contact myself on 0191 279 9959.

Andrew Playle, partner Dickinson Dees