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Promises, promises – you reap what you sow?

24 Apr 2018

A recent case serves as a stark reminder to farming families of the need for clear succession planning, and how promises made during lifetime can alter the way in which assets may pass on death.

It is one of a growing trend of recent Court decisions which have resulted in farms being divided between family members after the death of one spouse, leaving the surviving spouse in a vulnerable position, the family in ruins and the farm business potentially on the brink of financial crisis.

In Habberfield v Habberfield, the High Court was asked to consider whether promises made by the late Mr Habberfield to one of his four children, Lucy, during his lifetime were sufficient to stop the family farm passing entirely to the late Mr Habberfield’s wife on his death.

Mr and Mrs Habberfield owned the 220 acre farm which was predominantly diary with some arable and beef. Their youngest daughter Lucy was 50 years old when her father died. She had worked full time on the farm since the age of 16 and had always been involved in the main dairy enterprise of the farm. When she married, her husband also worked on the farm. This was on the basis that her father had assured her that she would own the farm when her parents were no longer alive.

Although two of the late Mr Habberfield’s other children also worked on the farm, this was not for as long as Lucy and they were involved with the smaller arable and beef enterprises on the farm.

It was argued that since she left school at the age of 16, Mr Habberfield had promised Lucy that she would take over the farm when he could no longer run it. As such, Lucy had worked hard on the farm for little pay with few holidays.

For Lucy’s claim to be successful, it was necessary to prove to the Court that a promise had been made, which she had relied on to her detriment.

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The case was complicated, however, due to the overall family dynamic and the ownership of the farm.

With regards to the latter, the farm was owned by the late Mr Habberfield and his wife as joint tenants, meaning that on his death Mr Habberfield’s interest in the farm passed automatically to his wife. Mr Habberfield’s Will also left all of his estate to his wife.

Taking all of the evidence into consideration, the Court found that the late Mr Habberfield had promised Lucy the farm, which she had relied on to her detriment. However, it was decided that the late Mr Habberfield’s promises could not bind his wife in relation to her share of the farm. As such, Lucy was awarded nearly half of the value of the £2.5 million farm. However, the Judge did not order that the farm had to be sold.

The case acts as a reminder for farming families to obtain advice about succession planning to avoid such issues arising on death.

At Hay & Kilner, our expert lawyers in the award winning Private Client team provide advice to farming families regarding succession and Inheritance Tax planning. The firm’s Contentious Trusts and Estates team also provide expert advice to Executors and beneficiaries regarding claims against estates and challenges to Wills relating to farming families.

For more information on any of the above or, how we can help your business, please contact Alison Hall, or call 0191 232 8345.