Who do you want to inherit your farm? Have you started the succession plan for your farm?
Under the Family Protection Act, if you have not made adequate provision for your children in your will, your estate could be subject to claims by one or more of them.
In broad terms, your children can bring a claim against your estate if adequate provision is not made for them in your will.
The question the courts have asked is whether you have breached a moral duty by not providing adequately for your child/children in your will, although it is clear that the courts will take into account the maintenance and support you have given them during your lifetime.
Eldest son John has returned home after university and is working the farm. Younger daughter Emily wants no part in the farm.
While you are alive you sell part of the farm and gift Emily $500,000 to buy a house. Meanwhile, John lives and works on the farm but only gets paid a salary.
You die. In your will you leave John a 3/5ths share in the farm but only leave Emily a 2/5ths share. The farm is worth $5,000,000.
John inherits $1,000,000 more than Emily under your will.
Emily makes a Family Protection claim because she thinks she should have got the same amount under the will as John.
In situations like this, the courts have said that John may be entitled to the extra share because of his work on the farm which improved the value of the shares and having regard to the maintenance and support (including the $500,000 gift) you gave to Emily during your lifetime. But it is not certain and there is much room for argument.
If you set up a family trust during your lifetime, transfer the farm to the trust; and complete a gifting programme, the farm would be an asset of the trust at the date of your death rather than an asset in your estate. Assets in a trust cannot be subject to claims under the Family Protection Act. Because the family trust is a discretionary one, the trustees can treat children in different ways if they so choose. This can be a way of ensuring that your wishes are given greater prominence.
It is important to ensure that succession planning is in place so that all parties who can make a claim against your estate are well catered for, whether it be during your lifetime or in your will. All families are different and so your succession plan must be designed to suit your family's needs.
The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document.
If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser.