The Importance of Succession Planning
June 26, 2018 10:25 am
In the absence of a formal succession plan, rights over property can transfer to successors by means of proprietary estoppel. Under this principle, rights will transfer if:
- someone is given a clear assurance that they will acquire a right over property; and
- they reasonably rely on the assurance; and,
- they act substantially to their detriment on the strength of the assurance; and
- it would be inconceivable to go back on the assurance
A recent case shows how this works in practice.
- From leaving school in 1979, G worked on his parents’ farms, seven days a week, up to 18 hours a day, with few holidays, for a maximum of £70 a week plus board and lodging.
- From 1992, G and his parents each held a one-third share under a farm partnership agreement.
- Following the father’s death, his share was attributed to the mother, Mrs T.
- From 2014, family relations deteriorated. G stopped working on the farm due to illness and being effectively excluded by Mrs T and his sister.
- Mrs T wanted to distribute her partnership share elsewhere.
The High Court held that:
- While difficult to identify precise occasions and words, both parents had made it very clear that, in return for G’s work, G would inherit the farm and his four sisters would share an insurance policy. This was well recognised and accepted within the family.
- G had relied on his parents’ promises, to his detriment, putting up with such low wages and no financial independence, and not pursuing other opportunities.
- G’s equity had crystallised by 2014, when relationships deteriorated, and was unaffected by later events.
The court suggested that Mrs T should have a life interest in her partnership share and a right to reside for life in her bungalow (which formed an integral part of the farm).
It was therefore held that G (the son) was entitled to inherit family farm and his mother’s farming partnership share.
This case highlights the importance of succession planning. The parents faced the common quandary of wanting to treat their children equally, yet passing the farm, unbroken, to one child.
It also underlines the importance of professionals taking careful file notes of family meetings. G’s case was supported strongly by the contemporaneous documentary evidence.