DECISIONS
Over recent months, we have found myself having similar conversations with clients, who are struggling to plan for the future, when family members who have historically owned the assets (land and property) of the farming business are older in years, and in many cases, unfortunately lost the mental capacity to make such decisions.
OLD TIMES
It is completely understandable why this has happened, particularly given the current, but unfortunately soon-to-go uncapped Agricultural Property Relief (APR) on death which as a result meant that it was a common approach to see land and property owned by a senior member of the family, only to be passed onto the next generation upon death, (on the basis that the requirements of the relief were met of course!)
PLANNING AHEAD
If someone, who on paper, is the sole owner of a vital asset such as the farm holding or a block of land, losing mental capacity can make it difficult (or even impossible) to make key financial and business decisions. A barrier which many family businesses are finding themselves up against and a very tricky matter to navigate indeed.
If someone cannot make decisions for themselves, the Court of Protection may need to step in. This court can authorise certain actions, but only if they’re clearly in that person’s best interests. That might include managing property, approving gifts, or continuing farming operations. Tax planning gets tricky when capacity is lost. The Court can agree to changes like restructuring or passing on assets, but only with solid evidence that it benefits the person involved. Much of the rationale for transfers at the moment for example is driven to mitigate IHT on the estate, and many commentators on this matter suggest that these cases could be seen as “tests” and “case specific” and the burden of evidence would sit with the family to show that it was the property owners intention to retain the farm as a whole unit for future generations.
Having a Lasting Power of Attorney (LPA) in place makes things far simpler. It allows trusted people to make decisions without waiting for court approval. The Mental Capacity Act 2005 transfers the power to make decisions to appointed Attorney’s, who are appointed under a Lasting Power of Attorney (LPA).
No one expects to lose capacity, but it can happen suddenly, without warning. A few smart steps now, even for those who think they may never need it, could be a saviour in years to come. As part of the process many are undertaking to understand who owns what, what reliefs are available (albeit limited to previous provisions) and any necessary transfers which need to take place, also consider your “LPA’s” – not forgetting these key important points:
- Keep your LPAs up to date and reflect your current wishes.
- Reflect these wishes in your Will.
- Talk to your family and advisers so everyone knows your intentions and document this clearly.
We are far from an accountant or financial advisor however we are coming across these issues more than ever before, having a team of trusted advisors to help is the key, and we are just one of those team members who assist on the valuation of side.