Gift of IFA business

#1

I have a client who wants to leave a business to 2 people upon his death. He wants to ensure that two of the employees ( his spouse and daughter) continue to receive an income form the business. He also wants to state that after the gift if the owners wish to sell they have to pay sum to the deceased’s wife.

Whilst I know that such stipulations cannot be made in a gift in a will , can members suggest a work around . I am thinking at this stage a letter of wishes but obviously that is not binding.

Many thanks

Collette Hodkinson
CPH Solicitors

#2

The way forward may be to create a new class of shares (or perhaps 2 new classes of shares) which will enable the client’s wishes to be given effect.

If, as the question suggests, the client is the sole shareholder, this should not affect the value of his interest in the business. Or is this too simplistic a suggestion?

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

#3

Without having thought this through in any detail, if the IFA business is a corporate entity (or could be morphed into one), could not a number of the wishes of the testator be achieved by creating various classes of shares and distributing these by Will – for example, income could be provided by way of Preference shares held in a life interest trust for the spouse and daughter and the equity stake by way of non-voting non-participating equity shares to be held in trust for the spouse for life – both trusts having the other two donees as remaindermen.

Paul Storrie
Storrie & Company

#4

Hi Collette,

I’m assuming the business is a Ltd?

You’d need to do some planning now with the shareholdings - on the assumption you can claim BPR and Holdover relief and no immediate tax issue. This (HR) would need to be considered if the business was sold. Leaving that aside -

The owner could gift 70% of the shares now to the 2 business people.

A Class Shares.
The remaining 30% would be split between the owner, his wife and daughter.

B Class Shares.
Wife and daughter would be Directors and could receive dividends. (Income) from the B Class shares.

If they wish to sell then ‘the sum’ would be paid on winding up or liquidation of the B Class Shares.

You’d need the above drafted in either a shareholder agreement or by alteration of the articles of association.

To retain some control of voting 80/30 the B Class shares can hold weighted voting rights - for example if the A Class share holders try to remove directors, alter the articles etc.

The rights on winding up can be specified for the each class of share - % of the nett sale proceeds.
The rights to dividends again can be specified in the articles - % of profits.

The downside is you lose the CGT uplift on the owners death. The owner needs to agree with gifting shares today and the possible implications of that.

Richard Bishop
PFEP