The great thing about show season for those of us in the agriculture sector is that it’s a good chance to catch up with clients and contacts, old and new, from across the country.
And it was at the Highland Show recently that I bumped into someone I had met through Young Farmers events. It was a very rewarding moment actually: he greeted me with a hug and told me that advice I’ve given him had helped change his life.
The topic that advice related to — succession — is often complex, and it’s something we see crop up time and again. It’s one of those situations too that underlines the importance of family members seeking separate legal advice to protect their interests as well as the future viability of a farm business.
Here’s an example and, of course, the circumstances have been changed to protect the anonymity of those involved.
Here, the family comprises mum, dad, a farming daughter of 32 and a non-farming son of 30.
The farming partnership includes the mother and father — in their 60s — and the daughter.
The family had the chance to buy the farm they’re tenants in, and made the general assumption the partners as trustees would purchase the farm.
The family was told they could take separate legal advice, and we were called in to discuss wills for the daughter, which led to a wider investigation of the purchase proposal. It soon become obvious the family situation meant the sale was more complex than it initially seemed.
The family intended the daughter would inherit the farm business and land. The farm was profitable in its own right, but if broken up between family members wouldn’t be viable.
There wasn’t much more than the farm to pass on to the children. The son and daughter had previously understood this, bearing in mind a tenanted farm couldn’t be split between them and the non-farming child had no interest in the operation.
With the purchase though, the situation had changed.
Whilst, when the farm was bought there would be considerable debt, there would also be a much more valuable asset. If the purchase was to proceed in the name of the partnership and/or the farm land was deemed to be an asset of the partnership, then the net value of that asset would be deemed a “moveable asset”.
As a moveable asset, if one or other parent were to die then there would be a potential legal rights claim.
If the deceased’s share in the partnership assets equated to £1,500,000, the possible legal rights claim by the disinherited child — in this case the son — would be £250,000 (and the surviving spouse £500,000 if claimed): hefty sums for any business of this kind to bear.
Alternatively, if the farm was bought in sole or joint names with a robust plan put in place to back the succession scenario, the farm would not be deemed “moveable” and no legal rights would be able to be claimed.
We often deal with family businesses in land transactions and succession planning as well as around pre and post nuptial agreements, partnership arrangements and family joint ventures.
One principle that underpins these activities is the importance of everyone seeking separate advice. As you’d expect, this is a subject the Law Society of Scotland has clear requirements on around conflict of interest.
The challenge can be that clients don’t realise, or are on many occasions fearful of taking up the offer of separate legal advice as they feel it may “upset the applecart” or cause offence.
But as this example shows, that approach can potentially be to their own significant detriment, and taking your own advice, alongside open and honest communication with everyone involved, is a crucial part of getting the right arrangements in place.
This article previously appeared in The Courier on 22 July, 2019.
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