CLA Stanford Hall Keep it - Grow it - Pass it on James Pavey, Head - - PowerPoint PPT Presentation

CLA – Stanford Hall Keep it - Grow it - Pass it on

James Pavey, Head of Rural Business & Estates james.pavey@irwinmitchell.com Andrew Parry, Partner, Rural Business & Estates andrew.parry@irwinmitchell.com

Keep it - Grow it - Pass it on

• Balancing priorities at different stages of life
• Family / business / succession / tax / other considerations
• Not letting the tail wag the dog

Some common dilemmas and challenges:

• primogeniture vs the right skills/person

for the job / the estate

• the pressures of honouring family

history / tradition

• the viability / self-sufficiency of an

estate and the community it supports

• fairness vs equality for different family

members

• family harmony
• managing people’s expectations
• accepting change

Hallmarks of Best Practice for Families and Estates:

Communication within the family Communication between clients and professionals – a team effort A joined up approach between you and your accountants / lawyers / surveyors / investment managers Efficient division of labour and avoiding duplication while ensuring good communication and information sharing Consider the costs of action vs inaction Combine professionals who are aware of cost sensitivity, cost-effectiveness and value added

Keep it – implications of availability of reliefs

Agricultural Property Relief / Business Property Relief Consider gifts of:

• non-relievable assets (Pass it on) – to trust or individual(s)
• assets which have strong potential for gain / “hope” value e.g.

development land. If you don’t need to Keep it Pass it on – or pass on some of it… Consider transfer of personal assets used in business to become partnership assets or company property to attract relief at 100% instead of 50%. (Keep it) Consider adjusting or removing assets which could jeopardise the balance

• f factors in favour of trading vs investment (Keep it or Pass it on)

Keep it – implications of availability of APR / BPR

BPR

“Balfour/Brander” planning is not an exact science – estates are dynamic and the tax goal posts can move – stay vigilant, do not cross it off the list Factors: time / capital / employees / other resources expended will change from year to year. Accountants are key. Undertake non-relievable activities (e.g. investment, holiday lettings without sufficient services etc), which would risk losing reliefs, into different hands

• r into a different vehicle.

If one spouse is younger or in better health, consider an inter-spousal transfer before an onward gift to maximise the chance of surviving seven years if relief is not available now. (Pass it on)

Keep it – implications of availability of APR / BPR

BPR continued Excepted Assets (normally surplus cash which is not required for future business purposes):

• Capitalise loan accounts - issue additional shares to reduce risk

(Keep it / Grow it)

• Extract value of excepted assets and give it to the next generation

(or possibly into trust) and survive seven years (Pass it on)

Keep it – action now can save cost/tax later

Review your Company Articles and Partnership Agreements Back to Basics - do you have a written partnership agreement? Default - governed by Partnership Act 1890 – partnership will be dissolved

• n death.

Is your agreement up to date? life events / gifts / death / divorce / capital introduced… Distinction between “partnership assets” and a partner’s personal assets:

• is the distinction clear from the partnership agreement?
• is the day-to-day reality reflected in the accounts?
• do the accounts and the partnership agreement accord with each other?

Better not to leave yourself exposed to challenge by HMRC after the event Tempus fugit, carpe diem - act now

Keep it – action now can save cost/tax later

Review your Company Articles and Partnership Agreements continued Does your partnership agreement create a binding contract for sale on death of a partner? e.g. are the surviving partners required to buy out the deceased partner’s share? – If so, no BPR on partner’s interest. Do your company articles of association create a binding contract for sale

• n death of a shareholder? – If so, no BPR on shareholder’s interest.

Check – seek advice – shift the burden of risk Avoid handing HMRC an own goal

Pass it on - Lifetime Giving Some Key Considerations

• Can you afford to live without the asset and the income / growth it

generates?

• If not, consider the impact of IHT Gift with Reservation of Benefit rules –

IHT will be charged as if the gift had not been made, but gift still valid.

• Capital security / risk / fluctuation in value / expending capital in later life
• Cash-flow projections – accountancy / independent financial advice
• Identify your “core estate” to retain or pass on intact in due course
• Can the beneficiary afford to take on the asset and maintain it?
• Consider impact of possible divorce, insolvency or mental incapacity of

the recipient.

• Update your Will after gifts
• Keep good records (especially for “regular gifts from surplus income”)

Trusts – created during lifetime or by Will

• Choosing the right blend of Trustees is vital:
• Family / friends / professionals / trust corporation
• The right mix
• Absolute trust / good faith required
• Try to anticipate and avoid potential conflicts of interest
• Is a Trust the right vehicle for the beneficiaries? How will they react?
• What type of Trust?
• Fixed interest
• Life Interest
• Discretionary
• The benefits of a good side letter / memorandum of wishes
• Do trusts overcome the risk of divorce?

Wills

• Choosing the right Executors/Trustees/Guardians is vital
• Family / friends / professionals / trust corporation
• Absolute trust / good faith required
• The right blend
• Try to anticipate and avoid potential conflicts of interest
• Consider separate gifts of non-relievable and relievable assets.
• IHT may have to come from somewhere – Insurance written in trust? Expendable assets?

Plan for it.

• Trusts – if appropriate, consider ability for Trustees to appropriate assets between funds of

the Will Trust to move relievable assets into the hands of the spouse before the second death.

• Express powers for Executors and Trustees to continue business/trade of deceased.
• Is flexibility suitable for you and your beneficiaries – allow your Trustees to adapt to changes

in circumstances and to decide who gets what, when and when?

• Does Probate mean everything is on hold? No – “Grant Ad Colligenda Bona” – to prevent

loss to and preserve the value of the estate

Attorneys – Lasting Powers of Attorney

• Choosing the right Attorneys is vital
• Family / friends / professionals / trust corporation?
• Absolute trust / good faith required
• The right blend
• Try to anticipate and avoid potential conflicts of interest
• Joint vs joint and several / consider replacement attorneys too
• Express powers e.g. re running business; discretionary investment management; authority to see

Will to avoid conflict (e.g. selling assets covered by specific legacies)

• Clear understanding of wishes (restrictions, guidance, side letters, talk openly with your attorneys)
• Attorney stands in the shoes of the Donor BUT does not take on “offices” and very limited statutory

powers to:

• make gifts of property to individual or into trust e.g. continuing payment of school fees
• to invest in tax-efficient investments (AIM/BPR)
• Apply to Court of Protection for authority – if Attorney’s exercise of powers is invalid, HMRC will

challenge gifts and unauthorised investments etc where tax is at stake

• No power to make a new Will or amend a current Will – apply to Court of Protection for “Statutory

Will” – full disclosure required

• If no LPAs or no Attorneys – the default position is a Court of Protection Deputyship

Pre-nuptial and post-nuptial agreements

A 2010 case Radmacher v Granatino UKSC 42

• Courts should give effect to nuptial agreements between parties subject to a

three stage test:

• freely entered into by each party;
• full appreciation of the implications of the agreement; and
• must be fair in all the circumstances to hold the parties to the agreement.
• Law Commission recommendations (not yet enacted by Parliament):
• contractually valid + signed writing + after full financial disclosure
• Each party has received independent legal advice
• Drafted in circumstances which are fair to both parties
• Children not prejudiced
• Not signed within 28 days of wedding

Pre-nuptial and post-nuptial agreements

Advantages: Greater certainty for both parties Asset protection Protection for business partners and wider family Maintain future integrity and viability of the Estate Disadvantages: Cannot fetter the Court’s jurisdiction – merely informative Unromantic / character slight How do I raise the subject? Blame someone else for the suggestion – business partners / trustees / professional adviser More popular before second marriages…

Pre-nuptial and post-nuptial agreements

Matrimonial home: inherited or shared asset – consider alternative provision in the event of divorce to include in agreement. Ownership of farm/business:

• Consider alternative provision for spouse
• Limited Company -

consider and review shareholders agreement and articles

• Partnership -

consider and review agreement

• Use in addition to a Life Interest in a Will
• Trust considerations – additional protection for trusts

If not marrying, consider a Co-habitation Agreement / Declaration of Trust

What if we don’t plan?

• Under-utilised tax reliefs
• Loss of capacity and possible influence of close family members on

behalf of loved ones

• Possibility of financial abuse or unwise decisions
• Undue influence of vulnerable family members by carers or relatives
• Are your intentions and the next generation’s understanding aligned?
• Is there a risk of disputes over family business / assets?
• How could divorce impact the wider family’s finances, businesses and

the Estate?

• Increased legal & emotional costs of sorting matters out “after the event”
• Will disputes – validity / interpretation / family provision
• Claims – including “proprietary estoppel”

Proprietary Estoppel – The Core Ingredients

• Assurance or promise
• Reliance
• Detriment
• Satisfying the Equity

Proprietary Estoppel – Increase in litigation

• Habberfield v Habberfield [2019] EWCA Civ 890
• Guest v Guest [2019] EWHC 869 (Ch)
• Moore v Moore [2018] EWCA Civ 2669
• Shaw v Shaw [2018] EWHC 3196 (Ch)
• Wild v Wild [2018] EWHC 2197 (Ch)
• Gee v Gee [2018] EWHC 1393 (Ch)
• Thompson v Thompson [2018] EWHC 1338 (Ch)
• James v James [2018] EWHC 43
• Graham v Graham [2018] 5 WLUK 132

Proprietary Estoppel It All Depends on the Evidence…

• Has there been a sufficiently clear assurance or representation (by

words or conduct) effectively amounting to a promise?

• Has the claimant relied on that assurance or representation to their

detriment?

• If yes, does the current position produce an unconscionable outcome for

the person who relied on the representation? If yes, what can the Court do to make the position conscionable?

Health Warning for Seminars

• There will always be changes and external factors on the horizon – procrastination is the thief of time.
• Information provided today is only a brief summary based on the current law, so please do not rely solely
• n the slides or talks when taking action, or refraining from taking action.
• Detailed advice needs to take account of all your personal and financial circumstances to achieve the

right results.

• Anglo Welsh law only.

Expert Hand. Human Touch.

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