Want to keep the farm in the family? Here’s what you need to know
Often, guaranteeing the farm is preserved for future generations is an ongoing issue for those in the agricultural community.
A recent High Court ruling has shed some light on the challenges facing farmers looking to plan their estate. Here’s what our partner and will disputes specialist, Andrew Wilkinson, has to say.
A family feud
In the case, Northampton farmer Joe Sargeant, who died in 2005, left most of his £3.2 million estate to his widow Mary, daughter Jane and her three children in a discretionary trust. Mary filed a claim against the estate more than 10 years after probate, claiming that her late husband did not make sufficient financial provision for her in his will and that she was now in a difficult financial position.
The Sargeant case highlights the need for careful and the importance of acting quickly if there are any doubts about the content of a will.
Splitting up a farm – not so easy
Farming estates can throw up a number of practical difficulties when considering succession planning. Farming estates are often asset-rich, cash poor – and land may have the potential for further redevelopment, which could swell the value of the estate even further. This lack of liquidity often means that there is no readily available sum of money which can be used to buy off possible claims.
Unfortunately, this can occasionally cause expensive and hostile family conflicts. Striking a balance between ensuring the preservation of the farm and making adequate provision for family members can be difficult, particularly when there is family who are outside of the farming business.
No straightforward solution
Succession planning is often put off, due to absence of easy solutions, frequently complex business structures as well as the hectic nature of daily farm life.
The trend towards diversification into other business activities has been both positive and negative from a succession planning point of view. It can create other revenue streams and discrete business interests which can be used to settle potential claims. However, diversification can result in increasingly complex business structures, which can make estates even harder to unravel in the event of a dispute.
What are the options?
An uncomplicated division of assets through a will between family members is still the most popular option for farmers, unsurprisingly with preference often being given to the family members still working in the business. However, this can create tension in the future, especially in circumstances where there may be other family members who believe that they should inherit a share of the estate.
Conditional gifts or buyout options can be given – so, for example, the farmer’s son is given the farm, on the condition that he makes certain payments to his siblings, in lieu of their “share”.
Additionally, setting up a life interest trust can be another option if families are sure that there are children or other family members who are keen to continue working on the farm in the future. This gives the farm to a particular person for their lifetime and then when they pass away, the farm is shared with the entire family. Although there is still the risk of excluding other family members in the short term, this option can allow the farm to remain functioning as a business. However, it does depend on people being patient and being prepared to wait for their share. Inheritances can end up skipping generations – which may not suit every family situation.
Don’t wait to talk about the future
The close physical proximity of many farming families can often be the cause of disputes around wills and estates. “Keeping the peace” is often seen as preferable to raising and tackling these sorts of difficult issues. The importance of discussing the future plans with family members and the reasoning behind them cannot be underestimated. Promises are often made (the typical “one day, this will all be yours”) which ultimately cannot be delivered upon, and which can lead to expensive litigation.
Many farms are still run through partnerships, with all expenditure both business and personal, being run through the business. This raises difficult issues about whether or not assets belong to the partnership, an issue which will be recognisable to many farming families. Joe Sargeant’s estate comprised a large chunk of valuable land and it was argued that the land was a partnership asset, and thus had passed outside the terms of the will.
It is important to always think about whether or not farming assets belong to the partnership or not. There is often a wish to keep land outside the partnership, but this doesn’t always work. If this is the intention, it is important to formalise that position, by, for example, a formal tenancy agreement being entered into between the land owners and the partnership. The terms of that agreement should then be followed, so any rent is paid, and the respective parties fulfil their obligations under the lease.
In agricultural estate planning, there is no simple solution and sadly, families often fall out over this problem. However, by finding a solution early on which satisfies everyone’s wishes through careful succession planning, disputes can be kept to a minimum and the long-term future of the farm can be guaranteed.