In succession planning for farmers, I am often asked to comment on the fairness of the distribution of assets between the farming child or children and the non-farming children.
In truth, there is no easy answer and it is frequently the case that the farming assets have to pass to the farming child. As for fairness, the inheritance reflects the lifetime commitment to the farm, less than reasonable remuneration for many years and the need of the assets to earn a living.
It is prudent if provision can be made for the non-farmers over a number of years and life assurance or pension contributions may be a good way of achieving this. However, this all presupposes spare cash!
Another way to provide for the non-farming family is to gift the farm by Will subject to capital payments to the non-farming children, perhaps over a number of years and with some provision for interest. However, these payments clearly must not place undue pressure on the business.
Commonly, the farm is given by Will to the farming child outright. This provides maximum flexibility, particularly if the land is required as security for borrowing. Nevertheless, it may be prudent to protect the non-farmers where the farming child has no clear onward succession, if the farm is sold or is vulnerable on divorce.
Instead of an outright gift, the farm could be gifted by Will on a life interest trust for the farming child. This allows the farming child to use the land without payment of rent and without disturbance from other beneficiaries. Upon any sale for development or otherwise, the Will trustees have discretion to distribute the sale proceeds between the farmer and non-farmers. If onward succession to the generation following is unclear, those issues can be determined in due course. If the farm is vulnerable on divorce, a life interest will be more difficult to attack.
So far as relief for inheritance tax is concerned, the capital value of the farm, on death, is included in the farming child’s estate but with the benefit of agricultural property relief which, with proper structuring, will be at 100%.
Succession planning is never easy! Needless to say, it is crucial that ownership of the farmland and farm business is properly structured to maximise tax reliefs and that Wills, and succession documentation, is drafted to include the provisions which the trustees will require.