Estate planning and putting personal affairs in order, such as having a will in place, is incredibly important. For a sole trader – someone who runs their own business in their own name and not through a company or partnership – consideration should also be given to their business. The law does not distinguish between business assets of a sole trader and their personal assets, so upon their death, all of their business assets will also form part of their personal estate.
One of the main considerations is inheritance tax and it may be that a sole trader needs to consider tax planning, as their estate may well exceed the inheritance tax threshold. This is likely where business assets and personal assets are combined.
One of the less obvious but equally important considerations is what will happen to the business on the death of the sole trader. If the business is made up of only the sole trader and there are no employees, then naturally the business comes to an end. But what if the sole trader business has employees and customers who rely on the business? The beneficiaries and executors often expect that the business will continue to run as normal if there are employees, until such time as it is handed over to the beneficiaries. This is not the case and practically, it may be impossible to continue running the business.
All bank accounts including the business accounts will be frozen once the banks are made aware of the death of the sole trader. This means that funds can't be paid in or out of the business accounts. For example, the bank will not release money to pay employees' wages or to pay traders.
This can cause all sorts of consequences. Not only does it mean that employees may not receive their salary and so the business will come to a halt, but also trade creditors will not be paid. This is detrimental to the business, its employees and customers. It's unlikely that the personal representatives of the deceased will be able to operate the bank accounts until they have attained confirmation from the court (which is the Scottish equivalent of probate), which could take six months or even longer, if it is a complicated estate.
Sole traders should therefore carefully review their business, to ensure that it can continue to operate after their death, particularly if there are employees. It may be that consideration needs to be given to the restructuring of the business, to make it a partnership or limited company. That's why it's always worth seeking legal advice, to find out what's best for individual circumstances, and an individual business.
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Senior Solicitor
