What are the most common situations that can give rise to farming disputes over inheritance, and how can you avoid them?
Disputes following the death of a loved one are on the increase. When a farm is involved it may mean the farm has to be sold or split up. This article discusses the most common triggers for disputes and highlights how to avoid them.
We advise clients every day on inheritance disputes. Although each dispute is unique, there are often common themes. Disputes will frequently arise where a farm or family business is involved. This is particularly the case in circumstances where the owner of the farm has not considered the implications of their death on the running of the farm, or how relationships in the family will be affected by their own death.
Farms are often a family affair and provide both a family home and income. They are therefore often subject to disputes, particularly where the family disagree on the future of the farm after the older generation have passed away.
Common situations which can cause farming disputes
Many people don’t realise that when someone gets married it revokes any earlier Wills. It is not uncommon for a farmer to prepare a Will following a divorce providing for the farm to pass to one of their children or a number of them on their death. Some years later they may meet someone new and get married again. Most people will think: ‘I have prepared a Will and the farm is going to my child/children so I don’t need to consider that thorny subject with my new partner’. However, marriage revokes that previous Will.
This means that the estate will be distributed under the intestacy rules. These are the statutory rules which govern the distribution of an estate where there is no Will or no valid Will. The intestacy rules favour a spouse over your children and so the result will often be the farm not passing solely to the deceased’s children as intended. A dispute often ensues between the step parent and the deceased’s children.
Many people believe in the concept of common law marriage which can often prompt difficulties among farming families. For example, your son or daughter may work on the farm and their boyfriend or girlfriend may move onto the farm to live with them. The couple may have children but not get married. If their relationship unfortunately breaks down, the family may feel relieved they do not have to get divorced, but you need to be wary of such assumptions. It is possible for someone to acquire an interest in a property where they have invested money or ‘monies worth’ in that property. If so, they can force the sale of that asset on the relationship breakdown or the death of their partner.
Such a dispute could result in the farm making a substantial payment to someone not even viewed as part of the farming endeavour. To avoid the disruption and anxiety this could cause, it is strongly recommended for the child and their partner to enter into a cohabitation agreement which not only deals with arrangements on the event of death but also the breakdown of their relationship.
The bulk of farming disputes that specifically arise on death are prompted by someone not receiving what they anticipated or had been promised. These claims are wide ranging and can often take years to be brought to a conclusion, costing vast sums of money. Claims can be made against the validity of the Will itself and result in that Will being struck out.
A claim could also be made for financial provision, even if there is a Will and it is valid but fails to provide for a spouse, child or dependent. This could result in part of the farm or estate passing to an unintended beneficiary or being sold to make a lump sum payment.
Another situation could be a claim to remove an asset from the estate entirely, for example, if it was promised to someone else. There are various legal tests and requirements to be satisfied for a claim to be successful. If a claim is successful it could result in the farm or part of it passing outside the terms of the Will or intestacy rules.
Top tips to avoid farming disputes
Many disputes arising from a death in a farming family can be avoided, protecting key assets for the benefit of the farm as a whole. In a bid to avoid your family being propelled into a costly dispute there are some easy steps you can follow:
#1 – Prepare a Will and make sure it is updated as life changes
Anyone who is involved in a farming business, partnership or family would benefit from preparing a will.
If you are planning to marry remember the act of marriage revokes a Will so ensure you seek legal advice in good time before the marriage, including advice about pre-nuptial agreements and preparing a Will in specific contemplation of that marriage.
#2 – Consider a cohabitation agreement
If an unmarried partner is moving into the farm, make sure the nature and extent of their occupation is recorded in a properly prepared document, such as a cohabitation agreement, to avoid any unwelcomed claims against the farm or family assets if that relationship goes sour or one of the couple unfortunately passes away.
#3 – Is a partnership agreement required?
Make sure your business arrangements are clear and any partnership agreement or shareholders agreement is regularly reviewed and updated.
#4 – Encourage your professional advisers to liaise with one another
Encourage your accountant, lawyer and financial adviser to speak and liaise with one another to ensure your ultimate aspirations are achieved. There may be a way forward which is great from a tax perspective but not if a relationship breaks down or on death. The only way to ensure your aims are met from both a legal and tax perspective is for your appointed professionals to speak to one another.
#5 – Engage in family discussions
A dispute rarely presents itself in a transparent situation where everyone is fully aware of what is going to happen on the death of a member of the family. If you have plans for the farm, make sure you discuss them with your family and take steps to have all the necessary documents in place to ensure your wishes are carried through.
If you are concerned about any family disputes which could arise in the future then it is always sensible to seek legal advice to ensure you do what you can to minimise the possibility of a dispute. It is not unheard of for a farm to be sold or split up as a result of a claim or to ensure someone receives a proportion of what they feel they were due.