You reap what you sow

The drafting of wills and the probate process must be taken seriously, especially where there is a ‘living business’. Most farming family businesses will encounter, and possibly have encountered, the probate process following the death of someone involved in their farming business. Business partners must understand the probate process before passing on the assets of a farming or equine business. Prior to applying for a grant of probate, the executors will need to complete an inheritance tax (IHT) account, which includes applying for valuable reliefs from IHT, such as agricultural property relief (APR) and business property relief (BPR).

Farming and equine businesses have a high fatality rate so unexpected deaths are not abnormal. After someone dies, a grant of probate is vital to gaining control over the deceased’s estate and effecting their testamentary dispositions. Without it, families can be left unable to deal with farm assets or access the deceased’s bank and investment accounts to pay beneficiaries their inheritance or settle any debts. Executors may also need a grant of probate in order to distribute or transfer the legal title of any assets/share of business to the beneficiaries in accordance with the deceased’s wishes.

Challenges to wills

Claimants who want to challenge a will have six months from the issue of a grant of probate to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the Act), so it is advisable for an executor not to distribute an estate to the beneficiaries within that timeframe.

The recent case of Ingram and Whitfield v Abraham highlights the problem of do-it-yourself (DIY) wills.[1] The successful claimants’ challenge was based on ‘want of knowledge’ and approval against the purported last will of Joanna Abraham, dated 8 August 2019. By the time of that 2019 will Joanna would have left her estate to her brother Simon Abraham, the first defendant, and her book collection would have been left to his wife. This 2019 will left nothing to Joanna’s two children, Henrietta and Tom (the claimants). Joanna’s previous will, executed in 2008, had left her estate to be divided equally between the claimants.

Given the six-month waiting period, the responsible executor will begin the process of collecting the necessary information to apply for the grant of probate as soon as possible from the date of death, so that it can be issued quickly. It is always helpful if the deceased kept their financial affairs in good order during their lifetime, with account details and a list of assets in a safe place, so that the required information is easy to collect by the executor. It is an important consideration that, if the executor distributes the estate too early, they may end up being personally liable.

Current probate delays

His Majesty’s Courts and Tribunal Service has been working with huge backlogs in processing probate applications since the COVID-19 pandemic. Anywhere from six to 18 months is fairly typical for the probate process, though some estates will take even longer. Any estate with a share in a living business will take longer as more checks are required. It is advisable to act promptly when dealing with an estate, as any IHT due must be paid by the end of the sixth month following the person’s death and prior to applying for a grant of probate. However, if the business is not being sold there is the option to pay by instalments over ten years.

There must also be accurate calculations of future IHT. Anyone claiming APR or BPR will have to fill out what is known as the full IHT account (using Form IHT400), together with various schedules that report the total value of the estate to His Majesty’s Revenue and Customs (HMRC) and whether there is any IHT due. If there is not enough information collected to submit the IHT400 by the six-month deadline then a payment on account can be made to HMRC. However, the IHT400 form must be submitted a maximum of 12 months after the date of death. Delays to applications can result in HMRC not sending timely confirmations of IHT payments to the probate registry. This can lead to applications stalling without any notification being given to the practitioner who submitted the application, resulting in further delays. In other cases, errors in administrative tasks, such as probate registry staff incorrectly scanning wills, can lead to applications being ‘stopped’, which can make an already protracted process even longer.

Applicants must wait 20 working days after sending the IHT400 form to HMRC before submitting the application for the grant to the probate registry. Historically, there can be delays with farms and equine operations as there is so much for the capital taxes office to review, as well as the complexity in valuing a ‘living business’. Areas which may fall under HMRC’s scrutiny include:

• misunderstandings as to ownership and what needs to be valued, especially partnership or non-partnership property as shown in Ham v Bell;[2]
• the need to value freehold at both market value (s.160) and agricultural value (s.115(3));[3]
• unwritten tenancies that need clarification for valuation and possible claims against the estate; and
• the potential for development and any ‘hope value’.[4]

With a ‘living business’, the delays of fighting caused by intestacy must be avoided and all partners in the farm business must have a robust will. Carrying out tax planning as part of the will drafting, alongside regular valuations and discussions with business partners, will allow for an easier probate process.

Sale of farmland and planning ahead

Some farmland may have to be sold to pay out family members or provide cashflow and it is possible to ask for an emergency probate application in these situations. It is important that the will drafter does look at the practical distribution of the estate and they must explain to the testator what would be required to fulfil their wishes.

Given homemade wills are not reviewed by a professional, one cannot know if one’s will is valid or tax position secure. A well-written will alongside tax planning can reduce the burden of IHT on the estate. DIY wills can inadvertently create trusts, so increasing the administrative burden on the executors as it may be necessary to register with HMRC’s Trust Registration Service. If that trust is not managed professionally, there could be penalty payments and tax charges in closing it down.

The authors are strongly of the view that where there is a living business there should be more preparation for the death of an active partner, even if in the later years that activity has been reduced to owning and controlling land. It is important that everyone involved in the probate process is fully aware of what practical and financial impact the death will have on the business.

In an ideal situation, with the testator’s permission, a full action plan should be prepared before death. In this way, the testator can understand what will happen to their beloved farm, business and family. For example, a bachelor partner leaving his share to his non-farming sister/s in good faith could leave the other partners exposed and, with the high value of land, the other partners/siblings unable to buy them out.