There are a range of steps that can be taken to help ensure inheritance plans work out as intended, a local financial adviser has said.
David Hill from Larne-based firm Hills Financial Planning said a common concern raised by farmer clients is the possibility of going into a care home and having to sell off land to cover fees.
“Care can cost upwards of £1,000 per week. If you have assets over £23,250 then you have to pay for care yourself,” he said during a meeting in Templepatrick on Tuesday.
Some farmers want to sign land over to a successor before they go into a care home, although there are caveats to be considered and each individual case requires specific advice.
Hill pointed out that a health trust can effectively contest someone offloading their assets if they think it was done for the purpose of avoiding care home fees.
“You have got to be aware of a motive challenge. Anything you do could be subject to a challenge by a health trust,” he said.
For a typical family farm scenario, transferring land to a successor will clearly need to be part of a natural succession plan for the business, with the older farmer stepping back from the running of the farm.
Hill pointed out that the ability of a health trust to challenge the reason for signing over property has no time limit: “The local authority can go back as many years as they want if a motive for getting rid of an asset was to avoid care home fees.”
This is often confused with an inheritance tax rule about gifting assets which states no inheritance tax is due on any transfers if you live for seven years after giving them. “There is no seven-year rule with care home fees,” Hill confirmed.
Signing over assets before death can avoid inheritance tax bills in most cases, although it can potentially raise issues with capital gains tax.
Again, circumstances can vary and tailored advice is needed.
With divorce rates approaching 50% in the UK, another concern among families is that assets which are passed on to a successor, either before death or afterwards, end up having to be sold to cover a divorce settlement.
Hill strongly recommends clients consider putting assets into a trust which can act as “a protective coating” to help ensure assets are passed on to the intended person.
He gave the example of “beneficiary protection trusts” which do not allow anyone other than the trustees to have a claim on the inheritance.
“It is a very common piece of planning that we use to make sure assets stay in the bloodline and do not end up with someone that you do not want them to go to,” he said.
Hill also said trusts can have a role in protecting assets from being sold to pay care fees, particularly family homes when the last person living in the house goes into care.
Another common concern for families is inheritance tax, although Hill suggested timely planning can see tax bills significantly reduced, and even avoided altogether.
This is often the case with family farms, where 100% relief on farmland is available in most instances.
However, getting professional advice is still recommended, especially if farmers own other assets not eligible for full inheritance tax relief.
‘Make no assumptions if you have no will’
Farmers should not assume that all their assets will transfer to their spouse if they die without a will, as the “intestacy rules” which apply can complicate matters, said David Hill.
Under these rules, if someone is married with children and dies without a will, then the spouse gets the first £250,000 of the estate and the rest is split between spouse and children.
If there are no children, then the spouse gets the first £450,000 and the rest of the estate is split between the spouse and other close family, such as parents and siblings.
If the person is unmarried with children, all assets will go to their children. Where the person is unmarried with no children, a range of close family could be beneficiaries.
With agriculture land prices continuing to rise in NI, more landowners are meeting the various thresholds which can mean a complicated and stressful succession process. “It is very important to have a valid will in place,” Hill said.