What Happens to an AI-Powered Business When Its Owner Dies?
Imagine your business continues operating after you die because it has been designed to do so. In such a situation, how prepared is your estate (executors, beneficiaries, business partners etc) to handle this business moving forwards.
Traditionally, when a business owner dies, key knowledge and decision making often dies with them. That’s not automatically the case for AI-powered businesses. Such systems are likely to continue to operate autonomously, generating income and profits with little human intervention.
This is an issue that is starting to present itself, with few founders taking the time to truly consider what the realistic implications would be. For most, they would want their chosen beneficiaries to either take over control and / or receive the value from such a business. However, what does this look like in practice?
The executors may suddenly find themselves responsible for a business that they do not understand, one that is based on systems that they cannot easily access as well as intellectual property they cannot easily identify or protect. Determining who owns the intellectual property may not be straightforward where a business relies on third-party AI platforms, licensed software or AI-generated outputs.
Some of the initial issues that require serious consideration will likely include:
- How to access the systems?
- Who owns the IP?
- How the business should be valued?
- How to preserve the income stream?
Of relevance for private client practitioners is the question of valuation. Traditional methods will still apply but these will need to factor in the fact that such businesses can continue to generate profit with limited human involvement.
Historically, valuers would consider whether a company’s earnings were reliant on a deceased business owner. In some instances, the death of a key individual can justify a reduction in the valuation. If the business can continue to generate profit after the founder’s death with little to no human intervention, will discounts for the death of a key person still be relevant?
For decades, private client solicitors have focused on properties, investments and family businesses. However, the next challenge is likely to be helping families plan for the succession of AI-generated wealth. The technology is changing rapidly. However, (as is often the case) the succession planning principles (and legislation) are overlooking what is likely to be a very different landscape in the coming years.
Much of the advice that is applicable to the traditional asset classes will remain relevant but there will be subtle differences for AI-powered businesses. Failure to plan in an appropriate way risks loss of value, unexpected control outcomes and potentially negative tax implications.
Business owners operating AI-enabled businesses should, as a minimum, consider:
- Ensure their Wills have been reviewed
- Review shareholder agreements
- Keep digital asset inventories (AI platforms, cloud infrastructure, API keys, crypto holdings, software licences, payment processors and key contacts)
- Document access credentials
- Take advice on IHT implications
- Establish succession arrangements for key systems
- Consider creating a guidance note explaining key systems / processing and contacts
From an inheritance tax and business succession planning perspective, AI-generated wealth raises questions that many families and advisers have not yet considered. Increasingly, digital assets, intellectual property and automated income streams may sit alongside more traditional assets when planning for family business succession.
The families that will benefit most from the preservation of intergenerational wealth (created by AI-led businesses) are those that have planned ahead, documenting access, ownership, governance and succession arrangements during their lifetimes.
For those who own an AI-enabled business, now is the time to review whether existing arrangements are fit for purpose. The technology may be evolving rapidly, but failing to plan ahead still carries the same risks: loss of value, loss of control and unintended consequences for those left behind.
