As if we didn’t need a reminder, the last year has forced many of us to engage with our own mortality.
But when it comes to getting our affairs in order, such is our innate reluctance to think about death that many of us would rather put off something like making a Will “till tomorrow”. Then when you add in a need to arrange a meeting with a solicitor (and pay for the privilege of course), the prospect becomes even less appealing. However, now that we are well into 2021, it is a prime time to be reviewing your affairs as we look to the future with renewed optimism. This applies especially to members of the farming community, where making a Will is a vital part of succession planning.
This article covers the basics regarding what happens to a person’s estate where they die without a Will, and then highlights the specific benefits to making a Will for those involved in a farming business.
Essentially, not having a Will in place will put you at the mercy of the rules of intestacy. There are many comprehensive articles out there discussing intestacy in more detail, but in brief summary:
- If the deceased is survived by both a surviving spouse and children, the spouse will receive the first £270,000 of the estate, with the remainder being split – half for the spouse and half shared equally between the children.
- If there is either a surviving spouse or children, they inherit entirely as appropriate (e.g. a spouse would inherit everything / the children would share everything equally).
- Where there is no spouse or children, the estate passes down an order of priority, starting with the deceased’s parents and ending with the Crown if no relatives remain.
The intestacy rules also raise the following key points:
- The rules are rigid, and restrict the beneficiaries to specific classes of family members.
- The individual’s wishes are irrelevant.
- If you are not married/in a civil partnership – your partner will not automatically benefit under intestacy. There is no such thing as a common law marriage under the intestacy rules.
- Even if you are married, the spouse’s entitlement is limited (see above).
- Step-children are not covered under the definition of children for intestacy (though adopted children are).
As is hopefully illustrated by this, the rules can result in an unsatisfactory distribution of the estate, particularly when the family circumstances are outside the norm – and in addition there can also be a potentially significant negative Inheritance Tax (IHT) position for an intestate estate.
The risk of an unsatisfactory outcome under the intestacy rules is magnified further when a farm is involved, and it’s not difficult to see why:
- A farm will contain some considerable assets: the huge increases in land prices in the 21st century can mean estates run into the millions of pounds.
- Farming is often a family affair, with multiple generations working together, often going back decades.
- There could be a type of business structure (whether formal or informal) such as a farming partnership, which will influence the succession of assets.
An estate administered under the intestacy rules could well break up a farming business if assets have to be sold to be portioned out arbitrarily, and the potential for an otherwise avoidable IHT bill is hardly the proverbial spoonful of sugar either.
A Will is therefore a crucial document, and if well thought out it can help limit, or avoid entirely, the problems highlighted above. Here are some important considerations a Will can plan for:
- Succession of farming assets where not all children are involved in the running of the business. A Will can ensure the farming assets are retained by the farming children, while non-farming children can be also provided for (perhaps with non-business assets or funds from life policies).
- Where a partnership or corporate structure is in place, a Will can ensure controlling shares fall to intended recipients (whoever they may be). Without such provision, you may be leaving behind a business partner who is not only dealing with your loss, but also now having to work with an unexpected business partner/shareholder who may be either unwilling or unable to engage positively with the future of the business.
- Making sure due care and attention has been given to the IHT position of the estate and that the very attractive reliefs available of Agricultural Property Relief (APR) and Business Property Relief (BRP) are fully utilised.
With an effective, well-thought-out and regularly maintained Will, an individual can ensure the farming business they leave behind remains intact and ready to continue into the future, as well as potentially saving many thousands of pounds of tax.
If you need any help with Will drafting or estate planning, or if you have concerns about a potential Will dispute, please contact Matt Damant on 01392 333757.