Published on: 25th April 2022

Sole Traders

Estate planning is an important tool for everyone to ensure that their assets and affairs are managed in all scenarios. For people who run their own businesses as  sole traders, estate planning can be even more important and should be discussed when creating a Will and sorting personal affairs. The law does not distinguish between the sole trader owner and the business which means that there are serious consequences when the owner dies.

A sole trader business comes to an end when the owner passes away. Importantly, the business assets will form part of the deceased owner’s estate and will pass through their Will. The executors of the Will distribute any assets (or the proceeds from sold assets) in accordance with the Will. This includes business finances and property.

If the business only employs the sole trader, the company usually comes to an end upon their death. When the company employs staff and has customers who rely on them, however, it is vital to plan accordingly to aid in the continuation of the company.

An issue that can arise is the fact that bank accounts are frozen once they are made aware of the death of the sole trader. Because of this, funds cannot be paid in or out of a business account and can have a serious impact on the continuation of a company. The business cannot receive funds from customers or clients and cannot spend funds, even for paying employees’ salaries. 

Personal representatives can be nominated in a sole trader’s Will to take over the responsibility of the business. It is important to note, however, that all employment terminates on the death of the sole trader, so any employees would have to be transferred to employment under the personal representatives. If employment is not renewed and transferred, the former employees might be entitled to claim redundancy which could have to be paid from the estate. Additionally, personal representatives are not entitled to use any frozen business accounts until after probate is completed.

Another important aspect of estate planning to consider if you are a sole trader is Inheritance Tax (IHT). Because the value of the estate includes business assets, it is more common to be above the IHT threshold. The executors of the deceased sole trader’s Will are required to pay any debts and taxes for the estate. To do so, it might be necessary to sell some business assets. This should be considered when deciding how to structure your company and determining a succession plan. At Casey & Associates, we can help business owners claim all available IHT allowances.

For these reasons, sole traders should carefully review their business plan to ensure that it is sustainable when they pass away. Part of this can be completed through estate planning to attempt to mitigate any issues that can arise. It can also be useful, however, to consider restructuring the business.

If you own a business as a sole trader and would like to discuss Estate Planning, please consider booking a no-obligation appointment with one of our Consultants. To do so, please call 01732868190 or use our online form by clicking here.

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If you wish to give instructions or require general information about our Wills, Lasting Powers of Attorney, or Trusts then we will carry out a telephone or Zoom appointment. However, if you wish to give instructions to one of our Consultants and you feel that you can only do this at a Face to Face meeting we are offering, at our Consultant’s discretion, a limited number of Face to Face appointments in most of the areas we normally cover (subject to Government advice). To see the areas we normally cover please click here. To arrange an appointment please telephone 01732 868190 or click here.

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