The sudden death of a business partner, co-director or sole trader can be very difficult to deal with. The emotional strain, loss of continuity and uncertainty over the future can make the ongoing running of the business both daunting and unmanageable.
What happens to the deceased’s interest in the business will generally depend on the terms of their Will; be it shares in a company, the partnership interest or the assets of a sole trader.
However, digital assets can cause a particular set of issues, especially when they are used by or as part of the business.
Whilst such things as software licence agreements and online accounts entered into by a company or partnership (on the assumption that there is an effective Partnership Agreement in place for the latter) should continue unaffected, continued access and use of such assets for the Executor of a sole trader could be problematic. This would not only depend on whether the Executor has the information to gain access to the assets (namely usernames and passwords), but also the terms of the agreement entered into and whether third party access and usage is permitted.
Where technology is more bespoke, for example designed and developed by the deceased, issues around ownership can arise if clear agreements and protections were not put in place during lifetime. Such disputes can also mean the business cannot use the technology whilst the dispute is ongoing, which can lead to problems in the day to day workings of the business.
For the deceased’s estate, the ownership of digital assets used for business purposes also has implications for Inheritance Tax purposes. If digital assets are owned by a company or partnership which operates a trading business, then they should benefit from Business Property Relief at the rate of 100%. This means the value of the digital asset is completely exempt from Inheritance Tax. However, if digital assets are owned by the deceased and used by the business, then the rate of relief available may be limited to 50%. There could also be issues in valuing such assets and determining who they pass to under the estate.
At Hay & Kilner, our multidisciplinary Information Technology and Intellectual Property teams can work with business owners and entrepreneurs at every stage to ensure all necessary agreements, contracts, Deeds and documents are in place to protect the business, and those with an interest in it, both during the lifetime of the business and of the individuals behind it. They can also work with our experienced Private Client team to ensure the estate is dealt with efficiently.
For more information on any of the above, or how we can help you, please contact Richard Marshall, or call 0191 232 8345.