Gifts with strings attached – how farm wills can go wrong
© David Barley/Alamy Stock Photo Cuts to inheritance tax relief due to take effect next April have prompted many new wills to be written and many existing documents to be reviewed.
It is not uncommon for farmers to want to attach conditions to gifts, so that the gift becomes effective only when certain events have happened, actions have been taken, or other requirements have been satisfied.
Family circumstances and history can make such conditions seem attractive and even offer a practical solution – for example, where the intention is that a farm is inherited by one or more children but, if it is then sold, the proceeds must be shared with those who did not inherit.
See also: Will reviews – advice for farmers on priorities and pitfalls
“Farmers love strings, and it’s not unusual for that to be the starting point, but there are other ways of achieving the desired outcome,” says Lisa Millington, a partner with HCR Law and head of the firm’s agricultural private client team.
The risks of using conditions include them being impractical or difficult to carry out, or so unlikely to be met that the wishes of the testator (the person whose will includes the condition) end up not being carried out.
They also increase the likelihood of a will being challenged, which can be costly, stressful and time-consuming.
As a result, anyone considering using a conditional gift must think carefully about its construction and the likelihood of success.
They should also consider the alternative of a discretionary trust, say advisers, who generally prefer this route.
Age condition
One of the most common uses of conditions is to restrict the release of an inheritance to when the beneficiary reaches a certain age – commonly 18, 21, 25 or possibly older, says Alex Burch, a senior associate with law firm Buckles. This can be relatively straightforward.
Problems have arisen in the past where a clause in a will states that a beneficiary will only inherit assets or cash on condition that they then pass on a certain amount of cash or other assets to other individuals within a certain timescale.
If they fail to do so, the condition has not been met and the inheritance is lost.
There are two types of condition – precedent and subsequent.
Types of condition
Condition precedent
A condition precedent requires an action to be taken, an event to occur, or a milestone to be reached before the beneficiary can take the gift. The most common of these is the age-related example, so the inherited gift passes to the beneficiary only when they reach a certain age.
A condition precedent should have a reasonable chance of being met, says Alex Burch of law firm Buckles, and should outline a specific timeframe, otherwise it becomes increasingly difficult to enforce as time passes.
If a condition precedent is not met then the beneficiary will not receive the inheritance to which the condition attaches. In such a case, that gift falls into the residue of the estate.
Condition subsequent
Under a condition subsequent, the beneficiary would receive the gift or inheritance on the grant of probate, but it can be taken away if they fail to comply with the condition.
A common example is for someone to inherit a sum of money or a property asset on condition that they look after or provide financial support for other people.
“These types of conditions are generally more difficult to enforce because they are open-ended,” says Alex. “The failure to observe the condition may not happen until many years after a gift has been made and it can then be very complicated to revoke [the gift].”
Court decisions
Challenges concerning conditions can be made through the courts, which will look at the wording used to try to understand the testator’s intention.
In many cases it would be best to tell beneficiaries beforehand of any conditional gifts in your will, and to tell others on whom those gifts have a bearing, says Alex. At the same time, he acknowledges that family dynamics and circumstances mean this is not always a good idea.
No matter how well-intended a condition may be, it can become irrelevant through time, changes in policy or asset values, or simply cause unforeseeable complications in an estate.
Any conditional gift needs to be defined with very specific terms and very clear wording, Alex says.
“It’s very difficult, especially at this time when there is so much uncertainty about the future of farming and the tax regime. No one can predict the future and legislative change.”
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Unenforceable or void conditions
Certain types of conditions are void – for example, if they incite criminal activity or require the beneficiary to exert political influence.
Encouraging the separation of a married or civil partnership couple, or conditions imposing restrictions on the social or personal lives of beneficiaries, would also be void, as would a condition requiring a beneficiary to divorce, or one that placed restrictions on who or what type of person someone could marry.
Giving: What to consider
- Before making any will, confirm the ownership of assets – this is commonly unclear or confused in farming families, and you can’t give away what you don’t own.
- If considering putting a condition on a gift, get professional advice to ensure the terms are clear and can be achieved – ambiguity is likely to lead to dispute or to the gift failing.
- Conditional gifts increase the likelihood of a will being challenged, which will delay probate being achieved and prolong the estate being wound up.
- A conditional gift will fail if it is impossible to perform, goes against public policy or is illegal, or if it conflicts with or is incompatible with the gift to the beneficiary or with other gifts or provisions in a will.
- Conditional gifts which threaten the beneficiary to make them comply with the condition are likely to be void.
Discretionary trust solution
The outcome you want can often be achieved more easily through the use of a discretionary trust, also known as a flexible trust, than through conditional gifts in a will, says Lisa Millington of HCR Law.
Carefully chosen trustees are named in the will and carry out the wishes of the testator according to their detailed letter of wishes.
This might include providing money for grandchildren’s education or towards buying a property for someone, for example, but can cater for any legal outcome the estate can provide.
“The trustees don’t have to hand over assets until they are satisfied that those wishes have been met or are going to be met,” says Lisa.
“For example, where it is the wish that should a farm be sold after it has been inherited, and the proceeds shared, there are many ways to organise this. The terms will be agreed and everyone involved will have signed up to it. This provides more certainty than a conditional gift which can be very costly or impossible to enforce.”
Flexibility to act
A trust also reduces the likelihood of disputes.
“Your trustees have flexibility to apply money or assets for the benefit of your loved ones in whatever way seems best, taking account of the relevant circumstances at the time of your death,” says Lisa.
“They would follow the guidance in your letter and implement your wishes as far as possible.”
She cautions that while farmers may not want to spend on legal fees, setting up a trust is likely to be far cheaper than the likely eventual cost to family members of a dispute over a conditional gift in a will.
Whether using a trust or trying to make a gift with conditions attached, professional advice is needed to achieve the outcome that is wanted and to avoid complications and cost.