“Over 10 years ago, my husband took over the running of the family farm and the land was signed over to him. His siblings never really had interest and so had no issues. We found out recently that my husband’s parents still haven’t made a will, but intend to leave the farmhouse to one of their daughters. The problem is where the house is situated in the middle of the farm. Our house is further away. All we foresee with it are problems and this is something that is really worrying us. Have you any advice?”

Your concern is well-founded and an issue I come across frequently in practice. When it comes to succession planning, I would always ask the question, “If the farmhouse was sold to someone outside the family, could the new owners potentially affect the running of the farm in terms of complaining about noises/smells etc?” If the answer to this is yes, then the farmhouse should not be separated from the family farm.

The next question that generally follows is why should the farming child get everything and/or how do you compensate the non-farming children?

Providing for parents

It’s important to acknowledge that farms are asset-rich and cash-poor generally; that the assets are not of value unless sold.

On a typical Irish farm, there is no nest egg or pension pot. Once the farm is transferred, the parents’ main source of income is the State pension. Any money made over the years was either used to rear children and put them through education or ploughed back into the land.

The primary concern should be to provide for the parents so that they can be emotionally and financially secure for the rest of their days after their years working the farm. This is generally provided for by either the parents retaining the house until they die or transferring the house but retaining a right of residence whereby the parents are the sole occupiers unless independent living quarters are added on.

It is more tax-efficient to transfer the farmhouse with the land as it would qualify as agricultural property for agricultural relief from gift/inheritance tax.

By financial security I mean there is a monetary payment on a weekly or monthly basis made by the farming child to the parents to supplement their pension income so that they can live independently.

This can be structured tax-efficiently through the farm as a wage or salary to the parent so that the business gets the tax deduction.

Reconciling two positions

I find that parents have different attitudes to fairness and division. On one hand you might have a parent who had to pay cash lump sums to non-farming brothers and sisters and struggled to make ends meet on the farm and so swear that they won’t burden the next generation with such an obligation. On the other hand, you have a parent who was overlooked (typically the mother) where the farm was transferred to a son who didn’t have much interest in farming but inherited all the same to keep the farm in the family name. Generally, that mother’s wish is that the same doesn’t happen to her children. So how do you reconcile the two positions?

Generally, if the house is transferring with the farm, there would be a cash lump sum payment to other family members. This can be paid over a period of time, for example within five years of the date of transfer, and it can be registered as a burden on the Folio, meaning the farming child can’t sell or charge the land without the sum being paid. The amount can vary substantially depending on:

  • The value of the house and the lands.
  • Whether there is debt on the farm.
  • What type of infrastructure is on the farm – if money has to be spent in terms of upgrading facilities etc.
  • Whether the child being gifted the farm is farming full-time or working full-time off-farm.
  • The type of farming enterprise and how profitable that is.
  • How well off or otherwise the non-farming children are, ie do they own their own houses, are they working etc.
  • Whether there are dependent children still in education or adult children with special needs.
  • What provision is being made for the parents, ie a support and maintenance payment for the parents for their lifetime.
  • Typically, the child getting the farmhouse could get a mortgage on the house in order to come up with the money to pay the non-farming children.

    Avoiding conflict

    Ultimately the parents want to avoid a conflict situation. The parents want to treat the children fairly, not necessarily equally. The best way to achieve this is to talk it out and explain your concerns but equally be prepared to compromise; e.g. discuss the possibility of buying the other daughter out of the farmhouse. The last thing the parents want to see is a fallout in the family over land.

    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 does not accept responsibility for errors or omissions howsoever arising. E-mail aisling@agrisolicitors.ie

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