Finance: The importance of succession planning and making a will

Many of us are uncomfortable talking about financial assets in general. However, it is essential to have your affairs in order in case the unexpected happens. Having these hard conversations now can help prevent financial losses or a family fallout that you might leave behind. While nobody likes to talk about wills and succession planning, we need to normalise these discussions and start having them around the dinner table as part of our everyday conversations to make it easier on our relatives when we pass away.

According to the Central Statistics Office (CSO) Census of Agriculture 2020: “Less than half (46%) of farm holders had a succession plan in place and 98% of these had named a family member as the successor.”

Along with this, a startling number of farmers and farm families don’t have a will; many people find it a complicated procedure and therefore try to avoid it.

Succession

Succession is the process of transferring knowledge, labour, skills, management and ownership of the farm business from one generation to the next. It may take time as it is a lengthy process, but it is essential to develop a comprehensive plan that suits your farm/business and family.

You need to ask yourself is there a potential successor? Do they have the desire, skills and knowledge required to operate the farm business successfully? Can you start introducing them into the business and giving them shared responsibilities while you start the process? Are two incomes required from the farm or will the older generation avail of the pension?

Having these conversations and starting this process will result in an easier transfer. Many people don’t have a succession plan as they have no successor, but there are still many options and structures that may work for your business. Succession planning is a complex procedure as it is individual to each farm business and family. If you haven’t already started this process, you should talk to your financial adviser and make a plan that’s best for your own enterprise.

Farm businesses operate under one of three business structures – sole trader, partnership or limited company. Make sure to get professional advice when deciding on your business structure as you don’t want to disqualify yourself or the next generation from tax reliefs.

The Succession Farm Partnership Scheme gives a farmer and their successor a tax incentive where the farmer and successor enter an approved partnership which culminates in the transfer of at least 80% of the farm assets to the successor. The relief is available through an annual tax credit worth up to €5,000 per year for a five-year period.

Making a will

Firstly, what is a will? A will is a document that outlines how you wish your possessions to be distributed after your death and who will look after distributing those possessions. An “executor” (or executors) named in your will is usually responsible for carrying out your wishes.

Solicitors often help clients draw up their will and act as the executors of estates. It will only be considered valid if:

If you don’t have a will, your estate (including your farm) will be distributed according to the law under the rules of intestacy. Only married or civil partners along with some close relatives can inherit under these rules.

Have the hard conversations now

If you have more than one family member interested in farming, you can split the agri assets. Try to make it as fair as possible. It can take a huge toll on families when they go to the reading of the will and are surprised at certain findings.

If a parent is going to leave their assets in a certain way and they discuss this with their family members while they are alive, you can justify decisions that have been made and explain to your immediate family why particular decisions have been made. It is advised to talk it out with your family, if possible.

Have a conversation with them and normalise these discussions. This will hopefully avoid any conflict that may be caused.

Put down your ground rules that may include: you don’t want the farm to be sold or you might not want family members to fall out over your will. If there are particular family members that are overbearing, invite a neutral party to attend the discussions. This will enable everyone to behave appropriately and the wishes of the person who owns the assets to remain the priority of discussions.

It is essential to have a living file containing all legal documents, passwords and business contacts in an accessible place in case the unexpected happens and they are needed.

Inheritance tax considerations

A large consideration when planning succession and wills is the inheritance tax (capital acquisitions tax- CAT) liable to the transfer of financial/business assets from one person to another.

Inheritance tax is a tax which can arise where you leave a gift or a share of your estate to someone in your will. The person liable for paying the tax is the person receiving the inheritance. It is essential to keep this in mind.

Note: an inheritance from your husband or wife is not liable to inheritance tax.

In calculating if a person will pay inheritance tax (CAT), you need to also take into account if a person has received other gifts or inheritances throughout their lifetime, which results in their entitled threshold being used up.

Any gift/inheritance you now choose to give them in your will is liable to the current rate of 33% tax (valid from 6 December 2012)

There are certain inheritance tax reliefs available which may apply to beneficiaries in your will.

Five steps to help you plan for the unexpected

1 Make a will. If you haven’t already done so, speak to a solicitor and start the process of making a will. Update your will regularly and inform relative parties.

2 Store your living file documents in a safe place. Ensure all passwords, relative farm contacts are inside and let your next of kin know where they are.

3 Speak to your family about your decisions, funeral wishes and arrangements.

4 Start planning your farm succession if it hasn’t already been done.

5 It is essential to have good legal and taxation advice. Meet with a solicitor and financial adviser that is reputable to get the help you need when making these big decisions.

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