In the Landed Estates and Rural Affairs Group here at Weightmans we routinely see farming families grappling with the same family issues. These may include trying to treat children fairly when estate planning or experiencing problems with in-laws (often where everyone lives on the same farm).
In extreme cases the future of the farm itself may be threatened by family fallouts and subsequent court action.
Against the changed tax landscape (which is difficult enough to navigate) it is important to face these challenges head on and take control with effective planning and practical solutions. In this, our first in a series of insights for our farming and landed sector clients, Lucy Phipps and Michele Wightman offer advice to prevent family problems arising and how to deal with those already present.
Farm Succession Planning
Very often farms have been in families for generations and clients are concerned for this to continue so that children working on the farm can carry on the legacy. But what do you do where not all the children work on the farm and/or where the children don’t get on? We always suggest that you try and work through issues as a family, sit everyone down and discuss everything in the open. There is nothing more likely to send a disgruntled beneficiary to court than where the decision has been made without their knowledge and they only find out after death on seeing the Will.
If the family discussion route doesn’t work, then it is a case of weighing up the responsibilities you have to various family members and looking to see if a fair outcome can be achieved. Note, this is not necessarily the same as equality between the beneficiaries. For example, if land in the estate is substantially valuable but is needed for one child to make his or her living there may be no choice but for it to pass to that beneficiary. Perhaps there are cash assets to try and even up the situation but if not, it may be that a difficult decision must be made.
Trusts
In some cases, the use of trusts can help. You leave the estate on discretionary trusts and have a separate (private) letter of wishes to the Executors/Trustees which sets out how you would like the estate to be distributed in the event of certain circumstances. Having the flexibility of a trust where they can make the decisions about how to distribute can be very useful for the Executors. Also, because the distribution is at their discretion it prevents beneficiaries arguing they have a right to any specific part of the estate.
What is very important in all this is to give thought to who should act as Executors and Trustees and if they should be independent of the beneficiaries. If you know there is likely to be disagreement between the beneficiaries, having them appointed as executors can result in stalemate and the administration of the estate coming to complete standstill. Apart from the costs associated with court action, where there are farming or business operations involved in the estate these need to continue, staff and suppliers need to be paid, deliveries made etc. If there is any chance at all of a falling out between the beneficiaries, you should appoint independent Executors and Trustees.
Cohabitation, Separation and Divorce
One of the biggest threats to farming families is divorce.
The best way to protect against it is to arrange for the marrying child to have a prenuptial agreement put in place before the marriage. The existence of a prenuptial agreement acts as an insurance, you hope you won’t need it, but it will be there just in case you do.
Divorcing without a prenup can have serious implications to the future of the family business. The incoming spouse may have claims against property, the partnership and even the income produced.
If your family is entangled in a divorce, it can often be complex and expensive to resolve. The assets will be diverse and include land, property, machinery and livestock and will require specialist valuations and there will often be complex multi-generational ownership. There is often limited liquidity putting the risk of sale high on the outgoing spouse’s agenda, something unfathomable for a lot of families and also something that can trigger significant tax consequences.
Even if you are not intending to marry, just living together or have children, can give rise to claims against the family assets.
Planning for potential future changes to your family is just as important as inheritance tax planning, and our specialist team understands the risks and the importance of protecting what you have built.
Our Landed Estates and Rural Affairs Group works in partnership with you to ensure all issues are identified, considered and a holistic approach is adopted to your situation.
For further information about rural estate planning contact:
Michele Wightman, Private Wealth.
Lucy Phipps, Family.
