Farming businesses are complex, made more so by the fact that the majority are family-run - often with the involvement of many generations over many years.
As younger members of the family marry, introducing wives and husbands into the fold, it’s important to ensure that wealth - along with the farming business - will be protected in the event of divorce.
Early conversations around protecting wealth in scenarios such as this can be uncomfortable, but ensuring that wealth is passed down to children and grandchildren should take precedence.
It’s a sad fact that divorce rates within the farming community are higher than average, and, as awareness has grown around the potential impact of divorce - both on generational wealth and the continued viability of a farming business - we have seen an increase in enquiries from farmers about safeguarding wealth, in particular via the use of “Bloodline Wills”, which use trusts to protect the farming assets.
The use of Bloodline Wills has grown in recent years, particularly within the farming community, who are increasingly choosing to place assets into Trust. Assets that are placed within the Trust cannot be considered among net assets in the event of divorce or bankruptcy.
Once no longer in Trust, the assets will be up for grabs.
The implementation of a Bloodline Will is a complex process and every scenario is different - with no hard and fast rule on how a Trust should be governed, each family’s situation must be assessed on a case-by-case basis.
It’s an effective solution for farming families, however there are pitfalls to avoid.
Don’t fall foul of IHT
While Inheritance Tax Relief (IHT) can be secured for assets within the Trust, there are certain circumstances that can void it. For example, farmland can be placed into trust, but caution is needed when dealing with leased land.
Generally, farmland is better inside a trust than out - where it will be unprotected - but farmers should take advice before changing any leases on land to avoid complications with IHT.
A trust mustn’t become a piggy-bank
Trusts have a separate ownership structure, therefore, if it is used as a piggy bank for someone, with regular cash withdrawals or payments, you run the risk of the assets within being brought into the ‘pot’ should divorce proceedings arise.
For example, if a trust purchases a property for the marital home, then it’s up for grabs. In most cases, it’s better for the trust to provide a ‘loan’ rather than make a purchase outright - however, any removal of assets from the trust requires a strategic approach, taking all circumstances into consideration.
A solicitor will be able to advise on where any purchases may cross the line.
Choose your trustees carefully
Every trust should have at least three trustees, and at least one should be independent.
The ideal solution is to appoint a professional trustee, which does incur more cost, but it adds a layer of protection - plus he or she will offer invaluable advice and guidance that could prevent potentially costly mistakes.
It’s very important to make sure that you aren’t the lone trustee - or ideally aren’t a trustee at all.
For farmers considering creating a Bloodline Will to protect their assets, it’s always important to seek legal advice. It’s a complex matter and failing to take advice in the early stages could well prove a false economy should an issue arise that prevents the trust from achieving its objective.