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Farm Land - The Importance of Partnership Agreements and Proper Records

Time and time again, farming disputes, which end in the exiting of a partner, are complicated by the status of the farm land itself. The same issue also regularly arises in the context of dealing with the estate of a former farm partners.

Often it can be attractive to treat the fam land as a partnership asset – it will usually receive beneficial tax treatment if it is such and it is not uncommon, from an accounting perspective, for it to be treated that way without consideration of the wider implications. Thus the ‘tax tail’ can end up wagging the ‘legal dog’.

If an asset is incorporated into a partnership, as a partnership asset, then that asset usually passes outside the estate of the deceased under the terms of the Partnership rather than under the will. That might be quite contrary to the intention of the deceased and the understanding of his, or her, family (as a while raft of previous court cases demonstrate). However, the accounting position is not set in stone and in the event of dispute the court will consider a whole range of factors, the accounts being only one, in seeking to understand what the proper intention of the parties was.

The problem is best avoided by careful documentation of the land owners intentions and clarification in the farm Partnership Agreement where one exists. Where there is such an agreement, it is important that this isn’t treated as a ‘fallow’ document. The Agreement should be regularly reviewed, considered and amended to remain relevant, up to date and to ensure it properly records the partners’ intentions.

Where disputes look likely to arise, it is crucial to get early legal advice early intervention and advice will maximise the prospects of avoiding costly and time consuming litigation.

For more information on the article above please contact Andrew Perkins.

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