Historically trusts have been used to provide enduring, cohesive ownership structures for farms and estates. The trustees provided oversight and collective wisdom; assisting the transition of the estate intact as successive generations fanned out.
Trusts can come to an end for a number of reasons. The most common reasons include, reaching the end of the permitted trust period or a beneficiary reaching a particular age. When trusts come to an end, frequently there are substantial tax charges, especially to Capital Gains Tax. This can be problematic when tax charges are not readily payable if the trust fund is land and is largely illiquid.
In the past, when one trust came to an end, there was often a family understanding that a new one would be created to continue to hold the estate. The greater tax cost associated with creating new trusts of any substance since 2006 has made that less attractive. The preservation and extension of existing structures has therefore taken on a particular importance.
A review of old trust terms should be undertaken to see how well they reflect the modern reality of the estate. To the extent they require modification or modernisation, there are various routes one might adopt. Where a major overhaul is needed, it can be advantageous, and tax effective, to undertake it using the courts. An application can be made under the Variation of Trusts Act.
Such applications ask the court to bless modification to the beneficial interests and the administrative powers. Importantly, it is also possible to extend the life of such trusts, by up to a further 125 years. This can be an attractive means of preserving the coherent ownership of the estate for several new generations to come.
For a review of the terms of existing trusts and advice on the possible modification or extension of them, please speak with your usual contact at Birketts.
The content of this article is for general information only. For further information regarding trusts for farms and estates, please contact Jack Royall or Nicola Nottidge or a member of either our Agriculture and Estates Team or our Private Client Advisory Team. Law covered as at January 2017.
This article is taken from our Agricultural Brief Winter 2016 publication. Similar articles can be found in the latest edition.