Family Succession Planning – Avoid the Dispute and Professional Fees

10th January 2018

Louis Fell discusses the challenges surrounding family succession planning.

Dealing with confrontation and disputes forms a large part of our rural work and our role is to seek out solutions and implement them alongside the clients professional team and from experience, normally neither party are “winners”. Nothing is more distressing than farming families falling out with each other. It’s rare to find siblings being able to work well within a business and you often see that as siblings age, they get their own family sparking a change in loyalties, duties and responsibilities. If you add in capital values of land and property and often perhaps a business short on cash, then friction arises which sometimes leads to a messy dispute.

Family Succession Planning

The saying goes, the only winners are the professionals (and it’s true in messy family splits), but on the whole prior planning and direction will help prevent this. The leadership needs to come from the top i.e. the parents/ the person in control and ownership. The starting point comes from understanding whether one wants to be fair or equitable. I think on the whole, the days of the eldest son getting the farm has gone and in reality most want to be more equitable if possible. I appreciate that this is a tough call to make particularly when dealing with land where returns are around 2% at best and so effectively one buying out the other becomes financially crippling. Remember that borrowing money, whilst relatively cheap at present, comes with the additional cost of interest and secondly having to repay the capital out of taxed income. In effect if you’re a higher rate tax payer, you need to earn £1.65 to pay back £1 after tax. Having advised on a lot of diversification projects, many are often used as mechanisms to generate additional income or businesses that can be gifted to other siblings in the future to help create fairness through income generation rather than capital.

The other concern is funding the older generation for the rest of their life. On the whole, we are living longer, costs of living is getting greater, add on the cost of elderly health care and families need to plan for this expense as part of their succession strategy. I know many are just relying on the farm to pay for them in the future and I think my generation need to ensure that they don’t become a financial burden on the business once they are in retirement. It again too often leads to another point of friction.

The other stumbling block is the point at which assets are transferred. There are often very sound tax reasons to hold onto it until death, particularly if there is hope vale/development value and also often as a protection mechanism in case of divorce for example. But if that is the case, ownership doesn’t need to also result in control of the business and here again I see ownership resulting in control which in turn leads to friction and dispute.

For more information on how our team can help you, please contact your local consultant:

Northumberland and Borders: Robert Thompson
Durham: Alex Jackson
Yorkshire: Matthew Brown

From all the George F White Yorkshire Team, we wish you a prosperous 2018.

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