For many farming families, the farm is not just a business but a legacy that has been passed down through generations. It represents a way of life, family history, and a significant financial asset. However, unforeseen circumstances—such as sudden illness, death, family disputes, or financial difficulties—can threaten the stability of a farming estate. One of the most effective ways to protect your farming assets from such risks is by using an agricultural or farming trust.
In this article, we will explore how agricultural and farming trusts work, the benefits they offer, and how they can be used to safeguard your estate from various unexpected events.
Please click here to find out more about our Wills, Trusts and Lasting Power of Attorney Services.
Free Initial Telephone Discussion
For a free initial discussion on how we can help you deal with the legal implications of creating a Trust, get in touch with us today. We are also experienced in dealing with all aspects of Wills and Probate and we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
What Is an Agricultural or Farming Trust?
An agricultural or farming trust is a legal arrangement in which the ownership of farming assets, such as land, livestock, or farm equipment, is transferred to trustees. These trustees are responsible for managing the assets in accordance with the terms set out in the trust deed, which is the legal document establishing the trust. The trust is created for the benefit of designated beneficiaries, who could be family members, future generations, or even charitable organisations.
The key advantage of a trust is that it allows the settlor (the person who establishes the trust) to retain some control over how the assets are managed and distributed, while also providing a degree of protection against risks that could threaten the estate.
Why Set Up an Agricultural or Farming Trust?
There are several reasons why you might consider setting up an agricultural or farming trust to protect your estate from unforeseen circumstances:
- Succession Planning: A trust ensures a smooth transfer of ownership from one generation to the next, minimising the risk of family disputes over inheritance.
- Tax Efficiency: Trusts can help reduce the impact of inheritance tax and capital gains tax, making it easier to preserve the estate for future generations.
- Asset Protection: Placing assets in a trust can provide a layer of protection against creditors, family disputes, or claims in the event of divorce.
- Ensuring Continuity of the Farm: The trust can be structured to ensure that the farm remains operational, even if key family members are unable to manage it due to illness or other circumstances.
How Can an Agricultural or Farming Trust Protect Your Estate from Unforeseen Circumstances?
An agricultural or farming trust can provide valuable protection against a range of unexpected events. Here’s how it can help:
- Protecting Against Family Disputes
Family disagreements over the management of a farm or the distribution of assets can be a significant risk, especially when multiple family members are involved. A trust can help mitigate these disputes by setting clear terms for how the estate is to be managed and how the assets are to be distributed.
For example, if you have children who may not be equally interested in continuing the farming business, a trust can be structured to provide for each child’s financial needs in different ways. The terms of the trust can specify that certain assets are retained for those actively involved in the farming operations, while other assets or financial compensation are provided to non-farming beneficiaries.
By having these terms clearly outlined in a legally binding document, you can help prevent potential conflicts and ensure a fair distribution that respects your wishes.
- Safeguarding Against Financial Difficulties
Farming is a challenging industry that is susceptible to financial fluctuations due to factors such as market prices, weather conditions, and policy changes. If the farm faces financial difficulties, creditors may seek to claim assets to settle outstanding debts. By placing your farming assets in a trust, you can separate the legal ownership of the assets from the personal liabilities of the individuals running the farm.
In other words, assets held in a trust are typically out of reach of personal creditors, offering a level of protection against financial difficulties that might arise from unforeseen circumstances. This can help ensure that the farm remains intact and operational even during challenging times.
- Planning for Illness or Incapacity
In the event that the person managing the farm becomes incapacitated due to illness or injury, a trust can help ensure that the farming operations continue without disruption. By appointing trustees to manage the estate, you can ensure that there is a designated person or team responsible for making important decisions regarding the farm’s management.
This arrangement can also provide financial support for the family if the settlor is no longer able to work. The trust can be structured to distribute income or capital from the trust assets to meet the family’s financial needs during times of illness or incapacity.
- Minimising the Impact of Divorce or Relationship Breakdown
When a family member who is involved in the farming business goes through a divorce or relationship breakdown, there is a risk that the farm’s assets may become subject to division as part of the settlement. A farming trust can help shield assets from being included in the marital estate, provided that the trust was established well before the relationship breakdown.
By transferring ownership of the farm to a trust, the assets are legally separated from the individual’s personal estate, making it less likely that they will be considered in the divorce settlement. This can help protect the farm from being sold or divided, ensuring that it remains within the family.
- Ensuring Tax Efficiency
Agricultural and farming trusts can be structured to take advantage of certain tax reliefs, such as Agricultural Property Relief (APR) and Business Property Relief (BPR). These reliefs can significantly reduce the inheritance tax liability on qualifying assets, making it easier to pass the farm on to the next generation.
By using a trust to hold farming assets, you can help ensure that the estate is managed in a tax-efficient manner, potentially preserving more of the estate’s value for future generations. However, it is important to seek expert legal advice to ensure that the trust is structured correctly to take full advantage of these reliefs.
Steps to Take When Setting Up an Agricultural or Farming Trust
When considering setting up a farming trust, there are several steps you should take to ensure it provides the intended protection for your estate:
- Seek Professional Legal Advice
Establishing a trust is a complex process that requires a thorough understanding of trust law, tax regulations, and estate planning. It is essential to work with a solicitor who specialises in agricultural and farming trusts, like Blackstone Solicitors, to ensure that the trust is structured correctly and meets your objectives.
- Decide on the Type of Trust
There are different types of trusts, each with its own benefits and limitations. The most commonly used trusts for farming purposes include discretionary trusts, life interest trusts, and bare trusts. Your solicitor can help you choose the right type of trust based on your specific needs and circumstances.
- Draft the Trust Deed
The trust deed is the legal document that sets out the terms of the trust, including the role of the trustees, the rights of the beneficiaries, and how the assets are to be managed and distributed. It is important that the trust deed is carefully drafted to ensure that it reflects your wishes and provides the necessary protection against unforeseen circumstances.
- Appoint Suitable Trustees
Choosing the right trustees is a crucial step in setting up a trust. Trustees are responsible for managing the assets according to the terms of the trust deed and must act in the best interests of the beneficiaries. You can appoint family members, friends, or professional trustees, or a combination of these. It is advisable to include at least one independent trustee to help ensure impartiality.
- Regularly Review the Trust
Over time, circumstances may change, such as changes in family dynamics, tax laws, or farming operations. It is important to regularly review the trust and make updates to the trust deed if necessary. This ensures that the trust continues to provide the intended protection and remains aligned with your objectives.
Potential Risks and Limitations
While an agricultural or farming trust can offer significant benefits, it is important to be aware of potential risks and limitations:
- Legal Challenges: The validity of a trust can be challenged if it is perceived to have been established with the sole intention of avoiding creditors or taxes. It is important to set up the trust with genuine estate planning intentions.
- Costs: Setting up and maintaining a trust involves legal and administrative costs, which should be weighed against the benefits.
- Tax Implications: Trusts can have tax implications, including inheritance tax and capital gains tax. Expert advice is essential to manage these effectively.
Conclusion
An agricultural and farming trust is an effective way to protect your estate from unforeseen circumstances, such as family disputes, financial difficulties, or changes in personal circumstances. By carefully planning and setting up a trust, you can ensure that your farming assets are preserved for future generations, while also taking advantage of tax efficiencies.
How we can help
We have a proven track-record of helping clients create Trusts. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Wills and Probate Solicitors
It is important for you to be well informed about the issues and possible implications of creating a Trust. However, expert legal support is crucial in terms of ensuring your wishes are met as you would want them to be.
To speak to our Wills and Probate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
Comments are closed.
