What it means
A will is a legal document that says who should receive a person's assets and who should manage the process. If there is no will, or the will is invalid or covers only part of the estate, the person is intestate for all or part of what they owned.
In that case, the law of the relevant place sets the order of inheritance. Spouses, children, parents and other relatives usually rank in a fixed order, and the exact shares differ widely between countries and regions, so no general rule applies everywhere.
A surviving partner who is not legally married may receive nothing in some places. A court usually appoints someone, often a close relative, to collect the assets, pay debts and taxes and distribute what remains.
That person is called an administrator, and acts under the court's supervision. This process can take months or years, and during that time some assets may be frozen or hard to use.
For business owners the risks are significant. Shares in a private company, a partnership interest or a loan to the business may pass to people who do not want to run it or who disagree with the other owners, which can disrupt decision-making and the company's finances.
Banks may also call in loans that depended on the owner's personal guarantee. Planning avoids most of these problems, and it need not be expensive.
A will, a trust, clear shareholder agreements and named beneficiaries on certain accounts allow assets to pass as intended, and business owners often review them whenever circumstances change. A short meeting with a lawyer is a small cost compared with the damage of a disputed estate.
The nuance is that some assets pass outside the estate. Jointly owned property and accounts with named beneficiaries often transfer directly to the survivor or beneficiary, regardless of whether there is a will.
Anyone relying on that route should check that the named details are still correct.
In practice
Real-world examples.
Example
A founder owns 60% of a private company and dies without a will. Under local intestacy law her shares pass to her relatives in a fixed order, and one of them has no interest in the business. The remaining owners must negotiate a buyout while the company continues to trade, and the bank freezes a pending credit line until ownership is clear.
Example
A sole trader with a small shop dies intestate and owes money to suppliers. A court-appointed administrator collects the shop's assets, pays the debts and then distributes what is left. Family members wait many months for any money, and some of the shop's stock loses value while it sits unsold.
Example
An investor holds a brokerage account that names a beneficiary and a house in his sole name. After his death without a will, the brokerage account passes directly to the named person, while the house follows the intestacy rules. The two assets end up with different people, which may not match what he would have chosen.
Case study
Seen in the real world.
This is an illustrative story about a fictional family business, Okafor and Sons Trading, owned entirely by the founder. He intended to leave the business to his eldest daughter, who had worked in it for fifteen years, but he never wrote a will.
When he died, the law divided his estate equally among his four children and his widow. The daughter who ran the business did not have enough money to buy out the others, and the siblings disagreed over whether to sell.
The business lost customers during two years of dispute and legal costs, and it was eventually sold for less than its earlier value. Several long-serving employees left during the uncertainty. This is an illustrative account, but it shows how the absence of a simple legal document can damage the business as well as the family.
Watch out
Common mistakes.
- Assuming the family will simply agree. Intestacy rules decide the shares, and relatives may disagree about how to handle the assets, particularly when a business is involved.
- Thinking a verbal promise is enough. A spoken wish is generally not a valid will, and a promise made to a relative cannot be enforced against the law.
- Forgetting to update a will after major changes. Marriage, divorce, children or a new business can alter what the will should say.
Questions
People also ask.
What does intestate mean?
It means dying without a valid will, so the law decides who receives the assets.
Who gets the assets?
That depends on local law, which sets an order of relatives, and no single rule applies everywhere. In some places the spouse takes most of the estate, while in others children share it equally.
How can a business owner avoid the risks?
By making a will, using trusts and shareholder agreements where suitable, and getting legal advice on succession, ideally before the business grows large.
From the founder's library
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