In many walks of life failing to plan can have adverse consequences. This is no truer than with agricultural businesses, where failure to give advance thought to what is to happen next can lead to devastating outcomes. Conversations around death are not easy especially when the family business is involved. However, having these discussions early and making sure your affairs are in order, can be the difference between passing on the family business as intended and losing the family business.
So, what should you do…
Carry out a review of your Partnership Agreement, Leases and Title Deeds
Partnerships offer family agricultural businesses flexibility; they are commercially recognised and are a separate legal entity from the individual partners making them the predominant business structure for rural enterprises. However, often there will not actually be a written partnership agreement in place and if there is, it is not fit for purpose. Where there is no agreement or where the agreement falls short, the provisions of the Partnership Act 1890 come into effect. This could result in the partnership ending on the death of a partner or business assets being frozen for months without any access. Having a written partnership agreement which makes provision for the death, retirement, incapacity, or divorce of a partner removes the uncertainty and allows for a smooth transition when unavoidable life events occur.
It is also very worthwhile reviewing leases and title deeds to ensure ownership is as expected. Sometimes the terms of such documents determine succession of those assets ahead of a persons Will and you should ensure everything is in line with your current wishes. In some cases, there may be a benefit to considering lifetime transfers of land, buildings, or an agricultural tenancy. A full review will consider such options and the benefits it could present to you and your family.
Review your Wills and consider your IHT position.
Having a valid and up to date Will is the only way to ensure that your estate will pass to those you wish it to and in the way you want it to. It is important that all members of a partnership have valid Wills in place.
Inheritance tax should be considered. While agricultural or business property relief may be available to farming enterprises and assets it is not a given and you should make sure your current operation will qualify for all possible reliefs. Burying your head in the sand in this regard could lead to thousands of pounds of inheritance tax charges which could easily be avoided with lifetime planning.
Consider Legal Rights and the impact they could have.
In Scotland it is not possible to disinherit completely your spouse or children. Both have an automatic claim on your estate. Their claim is to a share of your net moveable estate. Where there is a partnership, heritable assets such as the farm itself can be deemed a moveable asset and therefore can become subject to a legal rights claim. Where there are no other assets to meet this claim the farm may have to be sold.
Understanding the potential claim, considering alternative provisions for children not involved in the business or having conversations in advance to manage expectations can prevent legal rights claims on death breaking up the family business.
Let us help you
No two families or agricultural businesses are the same. We offer a personalised service providing specialist advice tailored to your situation, considering your concerns, and making provision to ensure the future of your family business looks how you want it to. Get in touch today to speak to one of our team.
You want to ensure that you are able to leave your estate to whom you wish, and a Will can also deliver opportunities to reduce Inheritance tax and care costs.
Inheritance Tax Planning
Minimising Inheritance Tax for individuals ensures that your assets (money, houses, land) built up over a lifetime can be passed on to the next generation.
Power of Attorney
Having control to put in place authority for an individual(s) to manage your financial and welfare affairs when you are no longer able to manage yourself.