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, one in a series of insights for our farming and landed sector clients to advise of the position in Scotland, Donna Brennan and Caroline Gillespie 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.
Scotland has the added complication that irrespective of the terms of a Will, children and spouses have certain legal rights to a proportion of a deceased person’s moveable estate. This can include farming businesses and land in certain circumstances, and in some cases, if those legal rights are claimed, it can potentially necessitate a sale of the business. It is therefore imperative to take advice on the possible impact of such claims on your estate.
Trusts
In some cases, the use of trusts can help. You can set up a discretionary trust in your Will and have a separate (private) letter of wishes to the 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 Trustees. Also, because the distribution is at their discretion it can prevent beneficiaries arguing they have a right to any specific part of the estate. Whilst the inclusion of a trust in your Will does not prevent the possibility of a legal rights claim, it may be that if the spouse/children know that they are included in the list of potential beneficiaries, they may be less inclined to claim
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 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. A prenuptial agreement is a binding contract enforced in Scotland and can protect family wealth and the family farming business. It can ring fence the pre-marital assets and other assets and income flowing therefrom.
Divorcing without a prenuptial agreement can have serious implications to the future of the family business. The incoming spouse may have claims against property, the farming business 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 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 financial claims against the family assets in terms of the cohabitation legislation in Scotland.
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 and your family 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. a
For further information about rural estate planning and family law contact:
Donna Brennan, Private Wealth
Caroline Gillespie, Family.
