Scots may have to insure to prevent farm break-ups

A Scottish government consultation on overhauling succession laws could force farms to take out insurance so they can pay out all members of the family if they demand their legal share of an estate when the owner dies.

The consultation proposes changing the law regarding the rights of spouses and children so they have a legal right – or legal share – over the whole estate, including any land and property.

Under current law, children and spouses have a legal right over the “moveable” estate, which is cash, shares and jewellery, but not over the heritable estate, which is land and property.

See also: Why it is time to talk about succession planning

The government says the proposals are based on recommendations from the Land Reform Review Group, which concluded in the interests of social justice it would be right to end the distinction between immoveable and moveable property in Scotland’s laws of succession.

The consultation document itself acknowledges that the change would potentially increase the legal share which may be claimed by a spouse of child.

This means if a farm estate was unable to meet the claims by making cash payments or by distributing some of the assets, land or other assets may have to be sold.

There are fears in some quarters that this could compromise some farm’s commercial viability.

But while there have been calls for agricultural units to be exempt, the consultation paper says the Scottish Law Commission has concluded agricultural farms and estates should not be excluded from claims for legal shares.

They considered that “any concerns were largely misplaced as farming families would be able to address the position either through renunciation or by arranging to pay any legal share in instalments.”

The consultation paper also says that some stakeholders had pointed out that if proper advice was sought, provision could be made to deal with the impact of legal share, for example, by insurance.

The document includes a number of worked examples showing how farm businesses could be affected by the new rules.

They suggest that regardless of how a farmer leaves their estate, if a claim for legal share was made by a spouse and/or children it would generate a claim on the estate of around 20% to 25%.

Families could agree not to claim their legal share, although the consultation suggests that in order to make sure that this was binding, people would need to formally renounce their claim.

The consultation period runs until 18 September 2015. It asks the question whether there are any businesses that should be exempt from the proposals and what scope there is for the main beneficiary of any will to borrow money to meet any claims for legal share.

It is the second set of far-reaching proposals put forward by the Scottish government in recent weeks. Last week it published the Land Reform Bill, which proposes modernising elements of Scotland’s tenant farming system and ending rates exemptions for shooting and deer estates.

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