Unfortunately, many people do not have an effective plan in place for what will happen to their personal and business affairs when they die. Sorting out the problems that this can create is often time consuming and expensive for families. It is also stressful and can lead to conflict between family members. So, what can you do to ensure that this does not happen to your family?
Make a Will
It might sound obvious, but the first thing you need to do is make a Will. This needs to be properly drawn up by a solicitor, otherwise it could be invalid. Your Will needs to be reviewed from time to time to make sure that it continues to reflect your wishes. If you do not make a Will, or if your Will is invalid, then your assets are distributed according to the laws of intestacy. This means if you are married, or have a civil partner, and have children, your spouse/civil partner will inherit two-thirds, or your estate and your children will share the other third.
Enduring Power of Attorney
Another thing to consider, is what could happen if you became mentally incapacitated through accident or illness or if you developed Alzheimer’s disease or dementia. Without forward planning, this could cause serious practical difficulties —for example, your family might not be able to access your bank accounts to pay your bills. However, you can avoid this problem by creating an Enduring Power of Attorney. This is a legal arrangement where you nominate a trusted person to act on your behalf. Unlike a general Power of Attorney which only operates in specific circumstances and ceases if you become mentally incapacitated, Enduring Power of Attorney is activated only when you become incapable of managing your own affairs.
Life File
It is also advisable to create a ‘Living File’ or ‘Life File’ to store all the information that the person dealing with your affairs after your death will need. Some of the documents to include in this file are; Will, up-to-date list of assets, life assurance policies, burial/cremation wishes, etc.
What to look out for
When planning for what will eventually happen to a family farm or business, there are important tax and timing issues to consider. Keep in mind that a farm is a valuable asset so transferring it needs to be planned in a tax-efficient manner. The earlier you seek professional advice on this the better.
Transfers that occur before you die
If you have a successor in mind, you will want to help them prepare for their future role. One tax-efficient way to achieve this is to enter into a Succession Registered Farm Partnership which provides an incentive in the form of an income tax credit of €5,000 for up to five years, allocated on a profit sharing ratio between a qualifying farmer and his/her successor. When transferring your farm to a successor, you may be liable for Capital Gains Tax. Timing is crucial because if you are aged under 66 and passing the farm to a family member, CGT reliefis unlimited once you satisfy the relevant conditions, however if you are over 66, the relief is restricted to €3m.
You do not have to pay CGT if you transfer land to your child for a house provided that the house will be your child’s only or main residence.
If you are transferring your farm to a person who is not a family member and are aged under 66, you can claim full relief when the market value does not exceed €750,000. The threshold is reduced to €500,000 if you are over 66.
If you decide to sell your farm as you approach retirement, Retirement Relief could eliminate your CGT liability if you satisfy the relevant conditions. Alternatively, qualifying for Entrepreneur Relief could reduce CGT to 10%.
Transfers that occur after you die
Where a transfer happens after your death, the person who inherits your assets will be liable for Capital Acquisitions Tax (33%) on the value above a certain threshold. If the inheritance qualifies for either Agricultural Relief or Business Relief, the taxable value is reduced by 90%.
Stamp Duty
Stamp Duty also must be considered during transfers. The rate depends on the type of property and the value. Reliefs are available for farms but, once again, timing is important. Consanguinity Relief reduces the Stamp Duty on qualifying assets from 7.5% to 1% on transfers up to 31 December 2020, consolidation relief allows for a 1% rate of Stamp Duty on qualifying transactions up to 31 December 2020. Young Trained Farmer Relief could also offer full relief on qualifying transfers up to 31 December 2021, however, there is a cumulative lifetime cap of €70,000 on the amount of tax relief that a young trained farmer can claim for Stamp Duty relief, stock relief and the succession farm partnerships tax credit. Transfers between spouses, are exempt from Stamp Duty.
Protecting yourself and your family
Before disposing of assets, it is important to protect your own financial security and that of your spouse. You also need to think about what, if any, future involvement you wish to have on the farm, whether you need to take money out of the business to provide for other family members, and what will happen to the farm dwelling house. All of these matters should be discussed with your professional advisors before any decisions are made.
Fair Deal Nursing Home Scheme
If you intend to avail of the Fair Deal scheme, it is important to be aware that 7.5% of the value of the farm must be set aside annually to fund nursing home fees however there is a three-year cap on contributions taken by the State provided your successor continues to operate the farm for six years.
Involve the family
Family relationships often come under strain at times of grief and emotional stress however you can reduce the chance of future conflict by involving family members when you are making plans for your farms future. Good communication with those who will be most affected — your successor, your spouse, and your children — will help ensure a smooth transition. Where consensus is hard to achieve, getting your accountant or solicitor to chair family meetings can be a good way to resolve differences and arrive at a shared understanding of what is in the best interests of your family and farm.