Our colleagues in Brodies’ Personal and Family team previously blogged on the Scottish Government consultation on proposed changes to the law of succession and legal rights, seamlessly incorporating a ‘Take That’ theme.
In the Land and Rural Business team we are also keeping a close eye on how the changes may affect our clients, many of whom operate farming and other landed businesses. Never to be outdone, below is our take on the consultation (ask your kids about our musical slant)
Gotta Be You?
The proposed changes are designed to reflect a more modern societal view and to simplify the law in this area. People are living longer, care costs are higher and women are working in the same environments and for as long as men. Should parents still have an obligation to pass on money to their children regardless of whether they actually want to?
The proposals envisage that, instead of the current distinction between heritable and moveable (detailed summary of the current law), the whole estate would be ‘up for grabs’ to legal rights – or to coin the new term ‘legal share’. Legal rights are currently only a proportion of the moveable estate (think everything but land and property) but legal shares would put all assets into the one pot.
Typically, a large part of a farmer’s assets is made up of heritable interests i.e. land and property, much of which will be integral to the farming business. Currently, agricultural land and buildings (indeed any land) cannot be touched by a “legal rights” claim.
So how would legal shares affect farmers and other landowners – let’s look at: The Story Of My A Life
Harry owns a farm worth around £2,000,000 (heritable) and has money/savings and equipment of £500,000 (moveable). He has five children and no spouse. Only one of the children, Zayn, works on the farm. The other four have pursued careers away from the farm.
Under the old rules, the legal rights claim could only have come out of the £500,000 moveable estate. The farm land itself would remain out of reach and intact and Harry could leave it to whomever he wished (we assume Zayn).
Under the proposals, each child would have an equal claim on the entire value of Harry’s assets. The amount due for the legal share far outweighs the money readily available in liquid assets. To meet the legal share obligation, the land (or part of it) may have to be sold.
At best, the farm and business may survive but as a smaller enterprise, with parcels sold to pay the legal share; at worst, the whole farm may have to be sold, leaving Zayn out of work; somewhere in the middle, the business struggles on, with decreased profitability.
Supporters of the change argue that legal rights are not mandatory – they don’t have to be claimed. However, whilst in many farming families everyone is in agreement as to what is to happen to the farm, there is no guarantee that a sibling with the right to claim won’t do so. In particular, in the case of estranged children there may be no incentive to do so.
Currently, it is open to individuals to leave (heritable) property to whomever they wish. It is possible to arrange one’s affairs in order to protect the majority of their assets’ value from a legal rights claim. This is most commonly done by converting as much of it into property as possible e.g. by selling shares and buying a buy to let property with the proceeds. With the proposed changes, the whole asset pot will be liable to a ‘legal share’ deduction, greatly reducing freedom of choice.
One Way Or Another
An alternative suggestion in the consultation is a restriction on who can claim legal rights, with children’s legal shares available only for 18-25 year olds. This would be in line with the legal obligation to provide aliment. This proposal stems from the view that while it is important to provide for one’s children, once they are adults they should be able to look after themselves and should not impinge on their parent’s right to testamentary freedom.
Does the Scottish Government want to Steal My Girl Land?
Taken together, the proposed changes to succession law and the wider land reform we’ve blogged about previously here, could well mean that it will be more difficult in future to keep farms and larger landed estates intact to pass down through generations
Brodies is here to keep you updated on the changes as and when they happen! If you have any concerns about the changes or would like to discuss estate planning, do get in touch. Our Land and Rural business team can provide advice on agricultural leases, sales, purchases and other business arrangement structures to best suit your needs, while Personal and Family can assist with succession, tax advice and planning and will drafting. We can call on many other specialist teams within Brodies to take care of all and any circumstances, which means the one and only direction you need to follow is to Brodies.
The full details of the consultation is available here and it is open until Friday 18 September. Brodies will be responding so do get in touch should you wish us to make any representations on your behalf.
On September 10, 2015