The Importance of Succession Planning
RDP’s Head of Agriculture and Private Client, Sioned Thomas answers some of the common questions asked around Succession Planning.
1. What is Succession Planning?
A succession plan is a long-term plan about the future of the farming business, the goals and vision of the business and a plan on how to achieve them. It forms part of the overall business plan and deals with more than just retirement and death.
2. Is it just a Will that I need?
A will is one document that forms part of the succession plan, but it is also important to consider the following questions:
a) Land and other property ownership – is the property held in one person’s sole name, or in joint names, is it a partnership asset, is it held by a company?
b) Who is occupying the property and on what basis? Are there formal agreements in place to reflect this, for example, tenancy agreements, grazing licences, share farming agreements and so on?
c) Which members of the family are involved in the business and what are their future plans?
d) What is the business structure? Is it sole trader, partnership, or limited company? If it is a partnership or limited company is there a partnership agreement or shareholders agreement in place detailing what happens on death, retirement, loss of mental capacity and / or disputes?
e) Are there other third parties involved, for example, is there land being let out, are there any share farming agreements, or informal agreements with neighbours or family members?
f) What happens if someone loses the mental capacity to be able to make day to day decisions? Does anyone else have the power to act on his/her behalf? Is there a Lasting Power of Attorney in place?
All the above points need to be taken into consideration when preparing a Will and the Will needs to tie in with the provisions of all the other documentation that is in place.
3. Doesn’t my entire estate automatically pass to my spouse in any event?
The answer to this question depends on your situation. If you die intestate (i.e. without leaving a will), the rules of intestacy govern who inherits your estate. Different rules apply depending on whether you have a spouse, whether he or she survives you and whether you have children. For example, if you die leaving a spouse, and you have children then the surviving spouse will receive your personal possessions, a statutory legacy of £270,000.00 and the remainder of the estate will be shared as to 50% to the surviving spouse and 50% to the children equally. Careful consideration needs to be given as to how this would work in your situation and whether the business would have to be split or assets sold to be able to be distributed in accordance with the intestacy rules. It may also have adverse tax implications. A Will avoids this uncertainty and enables you to control how assets are distributed.
4. What is a Lasting Power of Attorney (LPA)?
An individual can appoint someone (or more than one person) to be their attorney. The registered attorney(s) can act on the individual’s behalf, to carry out day to day functions which the individual can no longer manage on their own due to a mental or physical illness. There are two types of LPA – firstly for Health and Welfare which gives the attorney the power to make decisions about things such as your daily routines, medical care and life sustaining treatment and secondly for Property and Financial Affairs which gives the attorney the power to make decisions about money and property for example, managing your bank account, paying bills, selling property.
We have seen instances where a business has come to a halt because one of the partners became suddenly incapacitated and the bank account was frozen. If an LPA had been put in place, the attorney could have made decisions on behalf of the incapacitated person and a very difficult and stressful situation could have been avoided.
5. What about taxation?
Taxation is an important element of succession planning and different outcomes have different tax implications. Succession planning enables you to ensure that you are maximising the available reliefs and allowances, to reduce the potential tax bill whether that is on retirement, lifetime gifts or death.
It is important that all your professional advisors work together to assist you with your succession plan. Your solicitors, accountants, financial planners, business advisor and any other professionals you may require for your own circumstances can each bring their own expertise to the table, to ensure a plan that works for you and your family is put in place for the future.
Sioned Thomas heads up both the Agricultural and Private Client departments at RDP Law. She has extensive experience in estate administration and succession planning for farming clients as well as acquisition, disposal and re-financing of agricultural property. Sioned has a farming background and understands that the family relationship within a farming business is like no other. Her passion for farming clients and their businesses is undeniable and enables RDP to provide a specialist range of services based around agriculture, estate planning and farm diversification. Sioned is also an advocate of the welsh language and can conduct meetings in Welsh or English.
If you would like to discuss anything covered in this article, contact email@example.com or call 01633 413500. Alternatively visit our Agriculture section for more information on services available.