Land Agent’s, solicitors and accountants are all guilty of highlighting the importance of succession planning by regaling horror stories and anecdotes of what can happen if it all goes wrong. Less frequently do we outline the starting points for a successful succession plan and the documents that are useful and the key areas that need to be considered. So take fifteen minutes out of you busy day to think about your future.
- What do you want to happen when you are no longer in control of your business?
First and foremost is to decide what you want to do with your assets firstly in your retirement and secondly after you have gone. It is important to develop a plan that meets the expectations of all those concerned. The ideals may be subject to change in terms of timing and strategy for careful tax planning or to suit cashflow but getting your key objectives down on paper is a good starting point. If all goes to plan and you drop down dead after ploughing a field in top conditions or topping the market with your prime lambs then the chances are your succession plan will be carried out in the main by someone else. Therefore your objectives must be clear and must be documented.
- What do you farm, business and other assets do you have?
Before you can start tax planning you need an inventory of your assets including an estimated value of each and the current use. At this stage it is also useful to make a note of the land you occupy on verbal agreements, gather together any tenancy documents and record the location of the deeds of the farm or a note of the title numbers if the farm is registered. This is important whether you are a landlord or a tenant. Include cash in the bank or deduct mortgages/the overdraft when considering the total ‘pot’ of assets.
- Who do you want to bequeath it to?
Life is not fair and it is unlikely that anyone will achieve a ‘fair’ will no matter how hard they try, so do what you think is best for the next generation, fair or not. Take into account any family member who has been working within the business with the idea that they may one day inherit as well as others that are not involved. Again your wishes need to be made clear in the plan so use your inventory to match the heir to the asset.
- Seek professional advice.
This is where we come in. You have a framework and it is important that it is practical, achievable and as tax efficient as possible to avoid placing a burden on the next generation. Land agents and accountants work well together at this stage, not only can Carver Knowles provide values so the accountant can prepare the most accurate tax calculation. We can talk generally about your succession plan and run through initial ideas. We also help with verbal and written tenancies, identifying development opportunities, defining property boundaries and reviewing rights of way.
- The legal bit!
All your plans need to be legally recorded. A will is the first of these documents identifying your intentions and appointing your executors. Appointing a Lasting Power of Attorney is also a good idea as this ensures that your plans can be carried out if you lose the capacity to do it yourself. Partnership agreements are useful in the tax planning process and confirm which of the assets are partnership assets and will benefit from the appropriate reliefs.
- Talk to family members about their inheritance
Confirm with your heirs that your plans are in place and that they have been documented as you have discussed. It is polite to inform your executors and attorney of their appointments as although they won’t have to actively take charge they will be prepared if and when they are called upon.
You can’t start succession planning too soon and its best to discuss the matter sooner rather than later so nobody faces a nasty surprise when the will is read or a lengthy legal battle due to a miscommunication that will leave everyone out of pocket.
Once the plan is drafted it should be reviewed regularly, particularly where there is a change in family circumstances, valuation change or changes to tenancies or land occupation.