This is a tragic and cautionary tale about how a deceased business owner’s family was left emotionally scarred and financially threatened by a failure to plan for business succession. In order to be of readable length, I replicate only the essential facts of this story, with some facts changed to protect the innocent, says Jeremy Duffy.

Matthew built his primary business (which I will call The Main Game) from nothing with his own hard work and the assistance of close business associates. The opportunities for The Main Game were significant. The concept of the business was good, and Matthew and his supporters toiled over a number of years to realise those opportunities. Business structures were put in place to provide tax and succession advantages for The Main Game and Matthew’s other business interests. Agreements with respect to the financing and management of The Main Game were reached with close business associates as the business developed.

Matthew also wrote his own will in which he disposed of the shares in The Main Game, in part amongst the close business associates in recognition of their financial and business support in the development of The Main Game, and in part amongst his wife and children.

All seemed in place for a successful business future. And then tragedy struck. Without warning, Matthew died. His family was obviously thrown into turmoil as the full emotional shock of Matthew’s death struck them. In time, however, Matthew’s widow Penny, the executor of Matthew’s Will, forced herself to consider the obligations that had been thrust upon her. What she found was disturbing.

A well-structured business

You would be forgiven for thinking at this point that the problems she encountered related to the daily operation and development of the business. That is not the case. The business was operationally strong and well structured. In fact, it went from strength to strength after Matthew’s death. For this, Matthew had planned well.

The difficulties that Penny had to face went to the very question of the legal and beneficial ownership of the shares of The Main Game. What Matthew had done over the years was to completely confuse the issue of the ownership of the shares. Documents disclosed that, at various times over the years, the shares were inconsistently recorded to be legally and/or beneficially owned by Matthew, Penny, a company or a number of trusts, without any evidence as to how the purported ownerships came about. Matthew treated the legal and beneficial ownership of the shares as something that could be changed at will without any act of formalisation or supporting documentation. As a result, Penny was left with no idea who the real owner of the shares was.

The relevance of this was that, as indicated, Matthew’s Will treated the shares as if he owned them at his death. This was not something that Penny was at all certain about. In fact, she eventually reached the conclusion that the shares were owned by a trust that was not governed by the terms of Matthew’s Will.

The problem with this was that the shares were, by this time, extremely valuable. The business associates who stood to benefit from the shares in the event that they were owned by Matthew at his death were none too pleased about the prospect of the shares being owned 100% by the trust, thus therefore possibly out of their reach.

Litigation and legal fees

In short, litigation ensued, leading to massive legal fees. To make matters worse, the shares were, in the confusion, sold to a third-party in a manner that gave rise to avoidable taxation and other implications, thus complicating an already tumultuous situation.

Matthew’s mistake was to give no consideration to the legal implications of decisions he made about the business structure of The Main Game after it had been established. He gave no consideration to the problems that these decisions would cause for his estate after his death. He presumably thought that he covered it by writing his own Will, but he had in fact made matters very much worse.

All of these problems, and the resultant substantial legal costs and personal emotional hardship, could have been avoided if Matthew had obtained and followed appropriate advice along the way. Most critically, had Matthew consulted a solicitor with respect to the preparation of his Will, issues relating to the legal and beneficial ownership of the shares may have been uncovered. In any event, Matthew would at least have been aware of the importance of ensuring that the question of the ownership of the shares was clear in the context of the business succession of The Main Game.

As a result of his conduct, Matthew’s legacy, which might have been to substantially secure his family’s future whilst fairly remunerating all those who had helped him along the way, was now a legacy tainted by despair, grief and dispute.

Think before you engage in conduct that might possibly have significant legal and personal implications for the succession of your business and for those who are left to deal with your affairs after your death. Get advice and get it right.

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