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Posts tagged ‘human resources’

Dying to Do Business? – HR’s Role In Advising Business Owners On Inheritance Issues

Businesses spend a great deal of time analysing risk, but when it comes to the potential for people who lead companies to unexpected die, business owners will often prefer to avoid a discussion about their own mortality. This is a particular issue for small businesses, managed by sole traders, partners or families, whose success can rely almost entirely on the skills, reputation and knowledge of one or two people.  Considering that 90% of UK businesses employ less than 50 staff, it would seem likely that many thousands of businesses may be in this vulnerable position.

Human resources consultants, who advise small and medium sized enterprises, can play a vital role in reducing the risk to businesses caused by the sudden loss of their owners.  It may be a bit awkward to raise the likelihood of a business owner’s unexpected demise, as the arrangements people make for their death can feel distinctly off limits.  But substitute ‘sudden death’ for ‘succession planning’ or ‘business continuity management’, and when the subject is raised with tact and sensitivity, these discussions can be made to feel a lot more comfortable.

Take for example the case of a web design company owned by business partners Natalie and Gregory. Being friends for many years they had felt it completely unnecessary to have a formal partnership agreement, although the business was growing quickly and they employed three staff.  When Natalie died unexpectedly in a car accident, the lack of a formal partnership agreement mandated that the business had to close, by virtue of the Partnership Act 1890.  Under this legislation the dissolution of the partnership became Gregory’s responsibility and it took well over a year.  Debts were paid, assets liquidated and all three staff were made redundant. The very small surplus was then shared between Gregory and Natalie’s estranged (and much despised) husband Philip, as she died intestate without leaving a will. After dissolution, Gregory began the hard work of starting another design business from scratch.  Natalie’s long term ambition, that her daughter Camilla (who was studying design at university) would succeed her in a profitable and expanding business, was never realised.

And yet, with effective estate planning, this scenario could have turned out very differently for everyone after Natalie’s death.

Advising sole traders, partners or family businesses, on how to safeguard the final wishes of the business owner, can be broken down into three specific areas:

  • Succession or Sale.
  • Taxation Management.
  • Interim Management (Choosing the Executor)

In next three posts we’ll explore these areas in more detail and the options for advising small business owners.  These posts are not intended to make HR consultants experts in estate planning, but they will give them the insight and confidence to begin asking the right questions.

[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.]

Death in Service Benefits – The Importance of Reviewing Nominations

Photo of thinking business woman with hand on head on white background

Many employees are entitled to a death in service benefit from their employer.  The figure can vary considerably from a very small sum to over ten times an employee’s annual salary.  The benefit is usually linked to the staff pension scheme and will be free of inheritance tax, if the following criteria are met:

  • The payment is no greater than four times the annual salary.
  • The nomination of a beneficiary is made before the employee’s death.
  • The payment is made before the date the employee receives a pension.

Death in service benefits are unusual in that that they are paid outside of a will or the intestacy process, i.e. they do not form part of the deceased’s estate.  On the downside, this means that dependents, and the courts, have no means to intervene if there is a dispute about who receives the payment.  As these benefits are usually part of a pension scheme, trustees will normally have discretion about who to pay, but they are usually very reluctant to go against the employee’s previous nomination.

A case we came across involved a young employee who was tragically killed in a motor cycle accident.  Although he had recently become a father in a new relationship, he had not considered his death in service nomination and the payment was made to his previous partner (a relationship that had ended acrimoniously).  Following his death, the company instituted a scheduled reminder for all employees to review their nominations.

As with all estate planning (wills and other post death considerations) regular reviews of personal circumstances are essential and, in this case, the responsibility sits squarely with the employee.  But employers can give a helping hand here, with an annual message to encourage employees to review their nominations, ensuring those named still reflect their wishes.

It takes only a minimal effort to send an annual reminder, but for those families involved in the tragedy of bereavement, it could make a world of difference.