Post-death planning

In the realm of tax and succession planning for farmers and rural landowners, the importance of having a well-structured will cannot be overstated. A will ensures that your wishes are fulfilled upon your passing, providing clarity and control over the distribution of your assets. Without a will, the rules of intestacy apply, often leading to unintended consequences and additional administrative burdens.

Lifetime planning and legal rights

In Scotland, spouses/civil partners and children have an automatic legal right under the Scottish rules of succession meaning that they cannot be effectively written out of their inheritance under the terms of a will. Specifically, a surviving spouse/civil partner and children are entitled to claim one-third of the moveable estate if the deceased left both a spouse/civil partner and children, or one-half if there are only children or only a spouse/civil partner. Moveable estate includes assets such as money, shares, and personal belongings, but usually excludes heritable property like land and buildings. If there is a partnership, heritable property could convert to moveable and therefore substantially increase the value of a potential legal right claim. Legal rights can be claimed or discharged. It is however not possible for a potential beneficiary to claim both their legal rights and inherit under the terms of the will. Careful lifetime planning can help manage potential claims.

Will drafting

A well-drafted will can include various clauses to help ensure the granter’s wishes are fulfilled. One of the fundamental elements is naming an executor, who will be responsible for carrying out the instructions in the will and managing the estate. It is crucial to provide detailed descriptions of business interests to avoid any ambiguity. For instance, if a legacy bequeaths company shares but does not continue to state any shares that may represent the same due to a takeover of the company. If there is such a corporate change after the date of the will, this legacy could fail and the shares will not pass in terms of the legacy.

Additionally, considering utilising the £1 million inheritance tax (IHT) relief cap for qualifying Agricultural Property Relief (APR) and Business Property Relief (BPR) for deaths on or after 6 April 2025 is essential. This allowance is not transferable between spouses, and will be lost if this is not used on the first death. Landowners with qualifying APR assets valued in excess of £1 million should, at a minimum, consider adding a £1 million legacy to their wills to ensure this allowance is utilised on the first death.

Alongside these financial considerations, the will can also specify who will be responsible for paying any IHT liability. It is important to establish whether the legacies are to be tax-bearing or if the tax will be paid from the residue of the estate. This distinction is particularly important when the beneficiary of the specific legacy is different from who will benefit from the remaining residue of the deceased’s estate.

By incorporating these clauses, a well-drafted will can help provide clarity, control, and protection, ensuring that the granter’s wishes are effectively carried out and that the estate is managed in the most efficient manner possible.

Trust provisions in a will

Trust provisions in a will can be an invaluable tool in protecting your estate following your death. A simple use of trusts is to create a trust to hold assets for children until they reach a certain age. In Scotland, children gain legal capacity to inherit outright at 16 years of age. The age at which a young beneficiary inherits can, however, be increased in your will while naming individuals to manage that beneficiary’s inheritance until they attain a certain age.

Liferent (also known as ‘interest in possession’) trust provisions can enable, for example, a surviving spouse to live in trust owned property and receive income from trust thus maintaining their standard while protecting the underlying property for the ultimate beneficiaries on the second death. This can therefore be both tax efficient and provide a level of protection and control from beyond the grave.

You could also consider setting up a discretionary trust under your will, which offers a higher degree of protection, control and flexibility for post-death planning. The trustees have wide discretionary powers to hold and apply the trust’s assets for the benefit of the potential beneficiaries. No beneficiary has any entitlement to the trust’s assets or any income generated from them unless the trustees exercise their discretionary powers in their favour taking into account beneficiaries’ needs and circumstances. Decisions can be made that optimise tax efficiency and protect the estate from potential risks, such as creditors or divorce settlements. If and when tax rules change, the trustees can adjust their strategy having taken appropriate professional advice to minimise tax liabilities while maximising family wealth.

How we can help

The current IHT rules also provide potentially valuable options for families considering post-death planning. It may for example be possible in certain circumstances for beneficiaries and/or trustees to vary the terms of the deceased’s will within 2 years of death to maximise available tax reliefs or redirect assets to future generations.

Succession planning for farmers and rural landowners requires careful consideration of will drafting, lifetime planning, and trust provisions to ensure the efficient and effective distribution of assets. Our expert team can assist in ensuring proper planning is in place which can provide control, protection, and flexibility, safeguarding the interests of both the deceased and their beneficiaries.

To discuss these issues, contact a member of our team or email debbie.brown@andersonstrathern.co.uk or martin.campbell@andersonstrathern.co.uk.