Family Business Disputes After a Death

A family business dispute after a death is one of the most predictable and most damaging forms of family business conflict. Specifically, the death of a founder or major shareholder removes the person who was holding the family arrangements together. As a result, every unresolved question about the business, the family and the inheritance surfaces at once, often before the funeral is over. Importantly, the family is grieving at the same time as having to make major decisions about the future. Crucially, this combination of bereavement and decision pressure is what makes post-death disputes so unusually difficult. As a result, families that anticipate the risk and plan accordingly typically avoid the worst outcomes. By contrast, families that do not plan are often pulled into disputes that consume years and destroy relationships.

This page explains why family business disputes after a death are so common, what the typical patterns are, what the legal framework is, and what can be done to anticipate and manage the risk. Specifically, it covers the founder’s death, the death of other shareholders, the role of wills and trusts, and the steps families can take both before and after a death to reduce the dispute risk.

Why a death so often triggers a dispute

In short, the death of a key family business figure triggers disputes because it forces the family to confront questions it had been able to avoid. Specifically, while the founder or senior family member is alive, many arrangements are kept informal. The founder is trusted to make decisions, the dividend policy follows their preferences, and the question of who will take over is deferred. As a result, the family operates on the basis that the founder will sort it out.

Importantly, the moment the founder dies, the informal arrangements collapse. Specifically, the will may or may not address the business. The next generation may or may not be ready to take over. The shares may or may not be distributed in line with what family members expected. As a result, every unresolved question surfaces at once. Crucially, the family is dealing with all of this while grieving. For the wider context, see the common causes of family business disputes.

The four typical post-death dispute patterns

Crucially, family business disputes after a death tend to follow recognisable patterns. Specifically, the most common are these.

Pattern one: the will does not match expectations

First, the will does not match what the family expected. Specifically, the deceased may have left shares to people the family did not anticipate, or in proportions that the family considers unfair. Importantly, this is one of the most common triggers for a post-death dispute. For example, the founder may have left a majority of the shares to the working child while the non-working children expected equal shares. Alternatively, the founder may have left shares to a second spouse rather than to the children of the first marriage. Crucially, the dispute that follows can take the form of a will challenge, a claim under the Inheritance (Provision for Family and Dependants) Act 1975, or simply a family argument that affects the running of the business.

Pattern two: the will is silent or incomplete

Second, the will is silent on the business or does not address it adequately. Specifically, the deceased may have a simple will that does not deal specifically with the family business. As a result, the shares pass under the residue of the estate, which may produce outcomes the family did not foresee. Importantly, the absence of clear provisions often leaves the executors with significant discretion. By contrast, the discretion can become the focus of dispute between family members who want different outcomes.

Pattern three: control of the business is in dispute

Third, the immediate question of who controls the business after the death becomes the focus. Specifically, while the estate is being administered, someone has to make decisions about the business. As a result, the executors, the surviving spouse, the working family members and the wider family may all have different views about who should be making those decisions. Crucially, this can produce paralysis at exactly the moment when the business needs decisive leadership.

Pattern four: the long-deferred succession arguments emerge

Fourth, the death triggers the succession arguments that the family had been postponing for years. Specifically, with the founder gone, the next generation must finally decide how they will share leadership, ownership and the rewards of the business. Importantly, these decisions have to be made in a much shorter timeframe than they would have been if the founder had retired in the normal way. As a result, the discussions are often heated and produce disputes that might have been avoided with proper succession planning. For more on this, see succession planning for the family business.

The legal framework on death

Importantly, the legal framework that applies to a family business dispute after a death is unusually complex. Specifically, the law of succession, the law of companies and the law of trusts all overlap. As a result, expert advice is essential at the earliest possible stage.

The will

First, the will of the deceased is the starting point. Specifically, the will determines who inherits the shares and on what terms. Importantly, the will may include a specific gift of shares to a named beneficiary, a gift to a discretionary trust, or a transfer into the residue of the estate. Crucially, the form of the gift has significant implications for the family business and for any subsequent dispute.

The grant of probate

Second, the executors named in the will obtain a grant of probate to administer the estate. Specifically, the executors are responsible for collecting the assets, paying the debts and taxes, and distributing the estate in accordance with the will. Importantly, the executors have legal duties that they must perform, regardless of family pressures. As a result, where the executors are themselves family members, the executor role can become a source of conflict in its own right.

Challenges to the will

Third, the will can be challenged on a number of grounds. Specifically, these include lack of testamentary capacity, undue influence, lack of knowledge and approval, and improper execution. Importantly, will challenges in the family business context are unusually contentious because the financial stakes are typically very high. By contrast, the legal hurdles to setting aside a will are substantial. As a result, only a small proportion of will challenges succeed.

Claims under the Inheritance Act 1975

Fourth, certain family members can make a claim under the Inheritance (Provision for Family and Dependants) Act 1975. Specifically, the Act allows spouses, civil partners, former spouses, cohabitees, children, and others who were being maintained by the deceased to apply for reasonable financial provision out of the estate. Importantly, the court has wide discretion in deciding what reasonable financial provision is. Crucially, in the family business context, Inheritance Act claims can affect the ownership of business shares. For example, the surviving spouse may seek a larger share of the estate, which may include the family business shares.

Proprietary estoppel claims

Fifth, family members who were promised a share of the business but did not receive one may have a proprietary estoppel claim. Specifically, where the deceased led a family member to believe they would inherit shares and the family member relied on that promise to their detriment, the doctrine of proprietary estoppel may give effect to the promise. Importantly, the leading authorities include Thorner v Major [2009] UKHL 18, Gillett v Holt [2001] Ch 210 and most recently Guest v Guest [2022] UKSC 27. As a result, proprietary estoppel claims can be a powerful remedy where the next generation worked for years in the family business on the basis of a promise that was not honoured. For the wider legal framework, see the legal framework for family business disputes.

The shareholders’ agreement and the articles

Sixth, the shareholders’ agreement and the articles of association determine what happens to the shares on death. Specifically, the documents may include compulsory transfer provisions, pre-emption rights or other restrictions that override what the will provides. Importantly, this is an area where there is often inconsistency between the will and the company documents. As a result, the family business may end up in dispute about which document takes precedence. For more on this, see shareholders’ agreements for family businesses.

Cross-option agreements

Finally, many family businesses have cross-option agreements that provide for the purchase of a deceased shareholder’s shares by the surviving shareholders. Specifically, the cross-option agreement is usually combined with life insurance to provide the funds for the purchase. Importantly, where a cross-option agreement is in place, the shares may not pass to the family members named in the will at all. As a result, families need to be clear about what their cross-option agreements actually say before a death rather than after.

The role of executors and trustees

Crucially, the executors of the will and the trustees of any family trust play a central role after a death. Specifically, they have legal duties to administer the estate or trust in accordance with the relevant documents and the law. Importantly, where the executors and trustees are themselves family members, the role becomes particularly difficult.

In practice, the most common problems with family executors include the following. First, the conflict of interest between the executor role and the family role. Specifically, the executor has duties to the estate that may conflict with their interests as a family member. Importantly, this is particularly acute where the executor is also a beneficiary or has a financial interest in the business. Second, the perception of bias. Crucially, even where the executor is acting properly, other family members may perceive bias. As a result, the executor role can itself become a source of dispute.

Third, the practical burden. Specifically, the administration of a family business estate is often complex and time-consuming. Importantly, executors who are themselves working in the business or grieving may find it difficult to give the role the attention it requires. As a result, mistakes are made, deadlines are missed, and the executor’s conduct comes under criticism. Crucially, families should consider appointing professional executors alongside family ones, particularly where the estate includes a family business.

What happens to the business between death and grant of probate

Importantly, between the death and the grant of probate, the business continues to operate. Specifically, decisions still need to be made, employees still need to be paid, and contracts still need to be performed. As a result, the question of who has authority during this period becomes critical. Crucially, the answer depends on the structure of the company, the existing board, and any provisions in the company’s articles or shareholders’ agreement.

In practice, the most common arrangements are these. First, if the deceased was a director, their directorship terminates on death. As a result, the remaining directors continue to run the business under the existing governance. Second, if the deceased was the sole director, the company may be in significant difficulty. Specifically, urgent steps need to be taken to appoint replacement directors. Importantly, this is one of the reasons why every family business should have at least two directors. Third, where the deceased was a majority shareholder, the immediate question is who exercises the voting rights of those shares. Specifically, the executors typically have the right to vote the shares until they are transferred to the beneficiaries. As a result, the executors effectively control the business during the administration period.

Inheritance tax and the family business

Crucially, inheritance tax is one of the most significant practical issues on the death of a family business shareholder. Specifically, the value of the business shares is taken into account in calculating the inheritance tax liability of the estate. Importantly, business property relief can reduce the inheritance tax liability significantly, but the relief is not automatic. As a result, families need to plan in advance to make sure that the relief is available.

In practice, the main inheritance tax considerations include the following. First, business property relief at 100 per cent is available on qualifying trading businesses. Specifically, this can eliminate the inheritance tax liability on the business shares. Importantly, the relief is subject to detailed rules including the requirement that the business is a trading business rather than an investment business. Second, the seven-year rule applies to lifetime gifts. Crucially, gifts made more than seven years before death are generally outside the inheritance tax net. As a result, lifetime gifting can be highly tax-efficient if started early. Third, the structure of the company affects the availability of relief. Specifically, holding company structures, investment subsidiaries and cross-shareholdings can all affect whether business property relief is available. Fourth, the will should be drafted to take advantage of the available reliefs. Importantly, a poorly drafted will can lose business property relief that would otherwise have been available.

The first month after a death: practical priorities

By contrast, the practical priorities in the first month after a key shareholder’s death are different from the longer-term dispute issues. Specifically, the family needs to make sure that the business continues to operate while the longer-term questions are addressed.

In practice, the most important priorities are these. First, establish who is making decisions about the business. Specifically, identify the existing board, the surviving directors and any urgent decisions that need to be made. Second, communicate with key stakeholders. Importantly, the bank, the major customers and the major suppliers need to be told about the death and reassured about the future of the business. Third, secure key documents. Specifically, the will, the shareholders’ agreement, the articles of association, any cross-option agreements and the company’s financial records all need to be located and reviewed. Fourth, identify the executors and the trustees. Crucially, these are the people who will have the legal authority to deal with the business shares. Fifth, take initial legal advice. Importantly, early advice from a direct access barrister can identify the key issues and prevent costly mistakes in the first weeks.

Reducing the risk of a dispute after a death

Crucially, the most effective way to reduce the risk of a family business dispute after a death is to plan for the death in advance. Specifically, the steps that have the greatest effect include the following.

A clear will that addresses the business

First, the family business owner should have a will that addresses the business specifically. Importantly, this means more than just leaving the shares to the children. By contrast, it means thinking through who should receive which shares, with what voting rights, on what terms, and with what restrictions on subsequent transfer. Crucially, the will should be drafted by a solicitor with experience of family business work, not by a generalist.

A current shareholders’ agreement

Second, the family business should have a current shareholders’ agreement that addresses what happens on death. Specifically, the agreement should set out who can inherit shares, on what terms, and with what consequences for the wider ownership structure. Importantly, the agreement should be consistent with the wills of the family members. As a result, the legal documents work together rather than producing inconsistent outcomes. For more on this, see shareholders’ agreements for family businesses.

A documented succession plan

Third, the family should have a documented succession plan that has been shared with the relevant family members. Specifically, the plan should set out who will lead the business after the founder’s death, who will own which shares, and how the transition will be handled. Importantly, the plan does not need to be locked in immutably. By contrast, it needs to be specific enough to remove the ambiguity that produces post-death disputes. For more on this, see succession planning for the family business.

Cross-option agreements and life insurance

Fourth, the family business should consider whether cross-option agreements and life insurance are appropriate. Specifically, these arrangements provide for the surviving shareholders to buy the deceased’s shares at a pre-agreed price, with the purchase funded by life insurance. Importantly, this provides liquidity to the deceased’s estate and ensures that the shares stay within the planned ownership structure. As a result, the family avoids the difficulties of having a deceased shareholder’s estate hold shares in the business.

Professional executors

Fifth, the family should consider appointing professional executors alongside family ones. Specifically, a professional executor brings expertise to the administration of the estate and reduces the conflict of interest that family executors face. Importantly, the cost is usually justified by the reduction in dispute risk. As a result, this is one of the most under-used protections in family business estate planning.

Lifetime gifting

Sixth, the family business owner should consider lifetime gifting. Specifically, transferring shares during the owner’s lifetime can avoid the disputes that arise when shares pass on death. Importantly, lifetime gifting also has significant tax advantages where the seven-year rule applies. As a result, this is one of the most powerful tools available to family business owners who want to reduce the risk of post-death disputes.

What to do if a dispute develops after a death

By contrast, where a dispute develops after a death, the family needs to take expert advice as early as possible. Specifically, the longer the dispute is allowed to develop, the harder it becomes to resolve. Crucially, the steps that work best include the following.

First, take early legal advice. Specifically, advice from a barrister or solicitor with family business and probate experience can identify the key issues and the realistic options. Importantly, early advice does not commit the family to litigation. By contrast, it provides the clear picture needed for sensible decision-making.

Second, consider mediation. Crucially, mediation is almost always a better forum than litigation for resolving post-death family business disputes. Specifically, mediation allows the family to address the legal issues, the business issues and the personal grief in a confidential setting. Importantly, the Court of Appeal in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 confirmed that the court can require parties to engage in mediation. As a result, mediation is now effectively required in most post-death disputes. For more on this, see why mediation is usually the right starting point.

Third, avoid early adversarial steps. Specifically, sending aggressive solicitors’ letters or issuing proceedings without first attempting to resolve the dispute through discussion often makes things worse. Importantly, the time immediately after a death is when family members are most emotionally vulnerable. By contrast, the early aggressive step can entrench positions in ways that take years to undo.

Fourth, separate the legal questions from the family questions. Specifically, the legal questions about the will, the estate and the business shares need to be addressed on their merits. By contrast, the family questions about how the family will continue to function need to be addressed separately. Importantly, conflating the two often makes both harder to resolve. Crucially, the right legal advisers can help the family see where the boundaries lie.

Finally, take care of the surviving family members. Specifically, the immediate aftermath of a death is a time of grief, and the family business dispute is unlikely to be the most important thing emotionally. Importantly, families that look after the wellbeing of their members during the dispute typically achieve better outcomes than families that allow the dispute to dominate.

The particular case of the founder’s death

Crucially, the death of the founder of a family business is a particularly high-risk moment for a post-death dispute. Specifically, the founder is usually the person who has been holding the family arrangements together. As a result, the death produces a power vacuum that the family must fill. Importantly, this is the moment when all the unresolved succession questions surface at once.

In practice, families that handle the founder’s death best usually have several things in common. First, the founder has documented their wishes clearly, both legally and informally. Specifically, the will, the shareholders’ agreement and the succession plan all align. Second, the next generation has been prepared. Importantly, the founder has not waited until they are unable to work to start the succession process. Third, the wider family understands what is expected to happen. Specifically, the family forum or family constitution has set out the framework. Fourth, professional advisers are already in place. Crucially, the family is not having to find advisers in the immediate aftermath of the death. Finally, the family has the emotional resilience to handle the death and the transition together. Importantly, this often comes from the founder having modelled what a good transition looks like.

For more on the founder’s role, see the founder problem.

Frequently asked questions

Why are family business disputes so common after a death?

In short, a death removes the person who was holding the family arrangements together. Specifically, while the founder or senior family member is alive, many arrangements are kept informal. The moment they die, the informal arrangements collapse, and every unresolved question about the business, the family and the inheritance surfaces at once. The family is also grieving, which makes the decisions harder. As a result, the combination of bereavement and decision pressure is what makes post-death disputes so unusually difficult.

What happens to the family business between the death and the grant of probate?

The business continues to operate, but the question of who has authority during this period can be critical. Specifically, if the deceased was a director, their directorship terminates on death, and the remaining directors continue to run the business. If the deceased was the sole director, urgent steps need to be taken to appoint replacement directors. Where the deceased was a majority shareholder, the executors typically have the right to vote the shares until they are transferred to the beneficiaries.

Can a will be challenged in the family business context?

Yes, on a number of grounds. Specifically, these include lack of testamentary capacity, undue influence, lack of knowledge and approval, and improper execution. Will challenges in the family business context are unusually contentious because the financial stakes are typically very high. However, the legal hurdles to setting aside a will are substantial, and only a small proportion of will challenges succeed.

What is a claim under the Inheritance Act 1975?

A claim under the Inheritance (Provision for Family and Dependants) Act 1975 is a claim brought by certain family members for reasonable financial provision out of an estate. Specifically, the people who can claim include spouses, civil partners, former spouses, cohabitees, children, and others who were being maintained by the deceased. Importantly, the court has wide discretion in deciding what reasonable financial provision is. In the family business context, Inheritance Act claims can affect the ownership of business shares.

How can a family reduce the risk of a dispute after a death?

The most effective way is to plan for the death in advance. Specifically, the family should have a clear will that addresses the business, a current shareholders’ agreement, a documented succession plan, cross-option agreements where appropriate, and consider appointing professional executors. Importantly, lifetime gifting is also one of the most powerful tools available. As a result, families that have planned for the eventuality of death typically avoid the worst outcomes.

Further reading on this site

• Family Business Disputes (main page)
• The Common Causes of Family Business Disputes
• The Founder Problem
• The Next Generation
• Succession Planning
• Shareholders’ Agreements
• The Legal Framework for Family Business Disputes
• Unfair Prejudice Petitions
• Family Business Valuation
• Why Mediation Is Usually the Right Starting Point
• The Role of the Non-Executive Director
• Direct Access Barrister

Get advice on your situation

A family business dispute after a death is one of the most difficult forms of family business conflict. Specifically, the combination of grief, family dynamics and major commercial decisions makes these disputes particularly damaging. As a result, early specialist advice is one of the most valuable investments you can make, whether you are planning for the eventuality of a death or dealing with the aftermath of one. I act as a direct access barrister, commercial mediator and mediation advocate in family business disputes throughout England and Wales.

Call 020 4538 0246, use the contact form, or book a call directly. In addition, my book Winning in Family Business Disputes (forthcoming) covers post-death disputes in detail, alongside my published works on shareholder disputes and commercial mediation. Organisations like Family Business United also publish useful guidance for family business owners.

Important disclaimer: This page is provided for general information purposes only and does not constitute legal advice. The content may not be legally accurate for your situation or at all. You must not rely on anything on this page in respect of your legal rights. Before taking or refraining from taking any legal action, you should seek advice from a qualified lawyer. I disclaim any and all liability for any loss, damage or expense howsoever caused by reliance on the contents of this page. If you would like advice on your specific situation, contact me here.