Where business becomes personal: trusts and family businesses
23rd March, 2016
WHY start a business?
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); and
- 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”); and
- 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 in connection with 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 provide the opportunity to extend the availability of Entrepreneurs Relief particularly where you have members of the family involved in the business and holding shares in the business.
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 are experienced solicitors who 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.
* This article first appeared in the Ward Hadaway Yorkshire Fastest 50 2016 supplement. To read the supplement in full, please click here.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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