Following the death of a business owner, an executor will be nominated (in the will) to manage the administration of their estate (probate). People will often ask friends or relatives to act as executors for their will, but for business owners the implications of choosing the wrong executor can be unexpectedly detrimental in the long term.
Probate generally lasts a minimum of a year in the UK (often longer for complex estates), and if there’s no suitable alternative, an executor may be required to step in as an interim business manager. Without formal instructions in the will, the executor’s default position will be to sell the business and pass on the proceeds of the sale to the beneficiaries. However, this may not be in the best interest of the beneficiaries, as an expedient sale may not deliver the best return. Therefore, the executor has some discretion in how and when business assets are disposed of.
Given this responsibility an executor’s role might include:
- Taking over the management of a company.
- Opening new bank accounts.
- Transferring staff under TUPE (and managing the resulting tax and national insurance implications).
- Taking on responsibility for health & safety, employment contracts and environmental obligations.
- Letting, buying, or selling assets (including land and property).
- Defending the business against litigation or issuing claims against others.
- Assuming the legal ownership of shares.
The executor is personally responsible to the beneficiaries for the effective management of the business, in the period between the owner’s death and the completion of administration. If executors fail to manage a business efficiently, or fail to distribute the deceased’s estate as decreed by the will, the beneficiaries can ask for the courts to step in. In addition, if the actions of the executor reduce the value of the beneficiaries’ legacy, they can recover any losses from the executor. Beneficiaries can and do sue.
That is not to say that an executor cannot employ specialist professionals to assist in managing the business. They can also insure themselves against claims. To give additional support, the deceased may nominate up to four executors, all with different experience, to help administer large or complex businesses.
Given the complexity, responsibility and accountability inherent in the role of the executor(s), it’s well worth choosing them very carefully.
[Note: the content of this blog applies to England and Wales only, as other jurisdictions have different laws and legal processes. In addition, this blog is not a substitute for personalised guidance from a professional adviser and is for information only.]