Question: I have spent many years planning the future transfer of my farm to the next generation. My accountant has advised on the tax reliefs side, but I am concerned that legal issues could arise after my death. How important is succession law when passing on the farm?
Answer: While much attention is given to Capital Acquisitions Tax (CAT), Agricultural Relief and other tax considerations, many farm succession plans are ultimately shaped by the provisions of the Succession Act 1965. In practice, legal rights under the act can significantly alter who inherits farm assets, when those assets are transferred and whether a succession plan can proceed as intended.
The first issue to consider is what actually forms part of your estate. Not all assets owned by a farmer will necessarily pass under a will. Property held in joint tenancy generally passes automatically to the surviving owner through the right of survivorship.
Likewise, life assurance policies written in trust may pass directly to beneficiaries outside the estate. This distinction is important because assets that fall outside the estate cannot be distributed under the terms of a will and may not be available to support the overall succession plan.
Spousal entitlement
One of the most significant restrictions on testamentary freedom is the legal right share of a surviving spouse. Under Section 111 of the Succession Act, a spouse is entitled to a fixed share of the net estate regardless of what the will provides. If there are no children, the spouse is entitled to one-half of the estate. Where children survive, the spouse is entitled to one-third.
For example if a person leaves a farm to a child and the house to a spouse, the spouse may claim some of the farm, if the value of the house does not equate to one third of the estate. The spouse may choose not to take their legal right share and instead take whatever provision was made for them in the will. To give certainty, it is possible for a spouse to renounce their legal right share during the lifetime of the testator.
Children’s entitlement
Another area of concern is Section 117 of the Act, which allows a child to apply to court where they believe a parent has failed in their moral duty to make proper provision for them. The court may order that additional provision be made from the estate if it considers the claim justified.
These claims can be particularly disruptive in farming cases.
Once proceedings are initiated, the administration of the estate is often delayed until the matter is resolved. During this period, uncertainty may surround ownership and management of the farm. Where the farm business depends on timely decision-making, this delay can create significant difficulties.
In addition, a successful claim may require assets to be transferred or sold to satisfy the court order. Even where the farm was intended to pass intact to one successor, the outcome of a Section 117 application can fundamentally alter the plan.
Impact of prior gifts
Many parents transfer land, livestock, machinery or financial assistance to children during their lifetime. Under Section 63 of the Succession Act, certain lifetime benefits may be treated as ‘advancements’ and taken into account when the estate is ultimately distributed. If the will does not clearly address how previous benefits should be treated, disputes can arise regarding fairness and entitlement.
Impact of appropriation
Another useful but often overlooked provision concerns the power of appropriation. This allows estate assets to be allocated towards a beneficiary’s share rather than requiring assets to be sold and proceeds divided. This flexibility can be extremely valuable. It may enable a farm to be transferred intact to a farming successor while other beneficiaries receive non-agricultural assets of equivalent value.
Change in circumstances
Farmers should also remember that life circumstances change. Marriage generally revokes an existing will unless the will was made in contemplation of that specific marriage. Divorce, however, does not automatically revoke a will. In addition, gifts in a will may fail if the intended beneficiary dies before the testator, potentially producing unexpected outcomes.
Regular reviews of wills are therefore essential, particularly where family circumstances have changed, land has been acquired or transferred, or succession plans have evolved.
The key message is that tax planning alone is not enough
Finally, there is the risk of intestacy. If a person dies without a valid will, the estate will be distributed according to the strict rules set out in the Succession Act. These rules may bear little resemblance to what the deceased intended. For farming families, intestacy can create uncertainty, delay and conflict at precisely the time when continuity of ownership and management is most important.
The key message is that tax planning alone is not enough. Agricultural Relief and other valuable tax measures can only achieve their intended purpose if the underlying legal succession arrangements are sound. A succession plan should therefore be reviewed from both a tax and legal perspective to ensure that the farm can pass smoothly to the next generation while minimising the risk of disputes, claims and unintended consequences.
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors and Tax Consultants does not accept responsibility for errors or omissions howsoever arising. Email aisling@agrisolicitors.ie
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