While it is important for all of us to have a plan in place for ill health and death, particular issues arise for those with a family business and in particular, a farming business.
Do you know what would happen if you suddenly became ill and were unable to manage your business?
Have you arranged who would inherit your business and the rest of your estate if you die tomorrow?
Are you prepared if this were to happen to you? Unfortunately, the reality is that most people are not.
Tragic events turn lives upside down. They bring emotional stress in themselves, without having the uncertainties and difficulties associated with family disputes.
Imagine that you are the sole owner of your farming business. You took over from your father some time ago and intend to leave your farmland and business to your eldest son who has worked hard beside you to build up the business. You separated from your wife many years ago but have never divorced. Besides your eldest son there are two other children of your marriage, although they are not involved in the farming business. You also have a young child with your new partner. You are considering leaving something to your partner so that she and your youngest child will be financially secure after your death. But you never get round to making a will and the grim reaper strikes.
In these circumstances, the law on intestacy dictates that your personal belongings and the firs £250,000 of your estate, which may include some of your business, would pass to your estranged wife. The remainder would be divided into two equal halves with one share passing to your wife and the other being divided between your three children. Your partner would be entitled to nothing leaving her no option but to bring a claim against the estate. There are families and businesses that can weather such turmoil but most do not and the fragmentation of the ownership of the business places new challenges on the management. This has been further emphasised with the significant increase in the value of farmland.
The following tips can help to ensure that your business can be managed in these circumstances and preserved for your family in the long term:
Have a plan and keep it up to date
Do not delay. Consider what would happen to your business in the event of ill health or death now, not in 10 or 20 years’ time. Succession planning will assist with a smoother transition period for the business and help to secure its survival.
Manage expectations. Speak to family members and others involved in the business about your wishes for the future and explore their concerns. An open discussion about your succession plan will help to resolve misunderstandings between family members and may help to avoid costly disputes in the future.
Make a will and review it regularly
Circumstances and the law can and do change and your current will may not reflect your current wishes or be tax efficient.
Make sure your will and internal business arrangements such as partnership agreements are regularly reviewed together so that conflicts and confusion are avoided.
Create and register lasting powers of attorney for property and financial decisions and for health and care decisions.
Wills only come into effect if you die. Establish who will manage your affairs, both private and business, and make decisions about your healthcare and medical treatment if ill health or accident intervenes by making and registering lasting powers of attorney.
Birketts advises on succession planning and can help you and your family to create a comprehensive succession plan for your business. If you would like to discuss any of the issues raised in this article, please do get in touch.
The content of this article is for general information only. For further information regarding estate planning, please contact Rachel Winter or another member of Birketts' Agriculture and Estates Team. Law covered as at May 2016.
This article is taken from our Agricultural Brief Summer 2016 publication. Similar articles can be found in the latest edition.