Clause 4.8 of the STEP Provisions (second edition) contain limited powers to allow the trustees to carry on the trading of any business interests which the testator may have at death.
Where the testator was a sole trader, through these provisions the trustees have an implied power to continue the business in order that it is then sold. This power is only limited to realising the value of the business and through the implied power; this cannot continue indefinitely.
Generally, the trustees running the business would be liable for any debts which they may sustain. If the business is only being carried on to realise the value then through the STEP Provisions the trustees have the right to an indemnity from the estate, which gives precedence to the testators creditors and also the beneficiaries.
For this reason, it is recommended to include the Powers to Carry on a business clause within the testators Will, as this will then give the trustees the power the continue the business for as long as they feel is necessary. This could be until the market stabilizes in order that the business can be sold at the right time and price.
Specifically expressing the Powers to Carry on a business under the testators Will also means that because the testator has given their authority to carry on the business and indemnity is given precedence over the beneficiaries and not to the creditors.
The main points which including the express powers to carry on the business are to allow the Trustees to not be held responsible for the estate or beneficiaries for any loss which could be suffered because of carrying on, selling or for winding up the business. Instead, any losses which may be incurred would be settled firstly from the business assets and secondly from the residual estate if there are insufficient assets in the business. This means that the Trustees would not become personally liable unless acting wrongfully or fraudulently.
The powers also provide that the trustees also have the authority to employ managers to carry on the business on their behalf with remuneration made as they see fit.
Where the testator holds an interest in a limited company, the Trustees cannot usually take over the day-to-day running of the company on behalf of the testator. The articles of association/ shareholders agreements should be consulted for the directions with regards to the shares and whether these must be sold or if they can be transferred to a beneficiary.
If at death, the testator was a partner in a partnership; a death of one or more partner in the business will cause the partnership to be dissolved, unless the Partnership Agreement states otherwise. The express powers mean that provided the partnership agreement does allow, the Trustees may in their discretion sell the deceased’s interest to the surviving partners or could negotiate to the beneficiaries named under the Will to enter into the partnership. This would be instead of receiving their part of the residue/ gift under the Will, based upon the business being valued.
In most cases, where the testator holds business interests. WillPack will automatically include the Powers to Carry on the business unless otherwise advised.