Legal Structures for Succession

1. Legal Structures for Succession James Carleton 19 September 2019

2. Summary • Wills • Trusts • Partnerships • Companies • Charities

3. Wills

4. Wills • Ambulatory – taking effect on death • Testator/Testatrix – testamentary freedom • Appoints Executors/Personal Representatives • Who:- • Investigate the Deceased’s Assets • Account for IHT • Obtain the Grant of Probate • Complete Administration • Distribute to Beneficiaries • outright • in trust

5. Wills Will Testator/Testatrix Executors Grant of Probate • Property - assent • Chattels - delivery • Transfer investments Beneficiaries

6. Common Issues • Challenge to validity of Will – Duress; Undue Influence • Challenge under Inheritance (Provision for Family and Dependents) Act 1975 • Interpretation of its terms

7. Trusts

8. SETTLOR/£ TRUSTEES - Legal Capacity - Independent -Legal Owners Beneficiary 3 Beneficiary 1 Beneficiary 2

9. Trusts • What are they? • Settlor – the person with assets - £ • Trustees – Legal Owners • Beneficiaries • Individual – eg Life Interest Trust – ‘on trust for my son X’ • Class – ‘subject to your discretion for such of my grandchildren…’

10. Types of Trusts • Will Trust • Life Interest – Interest in Possession • Discretionary – Non-interest in Possession • Differing Tax Consequences

11. Why use them? • Asset Control/Protection • Divorce • Insolvency • Tax Planning • potentially exempt transfer • companies and BPR • Relevant Property Regime – 6%

12. Common Issues • Certainty of intention • Certainty of subject • Certainty of object – or Beneficiary • Powers of Trustees • Management • split legal and beneficial ownership • eg insurance

13. Interest In Possession Trust SETTLOR TRUSTEES LIFE BENEFICIARY Beneficiary 3 Beneficiary 4 Beneficiary 2 Beneficiary 1

14. Discretionary Trust SETTLOR TRUSTEES Beneficiary 2 Beneficiary 1 Beneficiary 3 Beneficiary 4

15. Partnerships

16. Partnership • General • Limited Liability Partnership • Limited Partnership

17. General Partnership • Express or Implied • Partnership Act 1890 • S1(1) – relationship between persons carrying on business with a view to profit • S2 – rules for determining existence of a partnership • Joint ownership not ‘of itself’ sufficient • Nor the sharing of gross returns • Receipt of a share of profits is prima facie evidence • Between named partners • Joint and several liability

18. Partnership Agreement • What is the Business? • What are the assets within the Business? • What is the accounting regime? • Profit sharing • Treatment of capital • Termination/retirement

19. IHT Treatment • S105(3) – is there a business carried on for gain? • 100% relief if relevant business property or an interest in a business • 50% - if the land/buildings are owned by X but used by the business • S105(3) – relief disapplied if the business is ‘wholly or mainly’ one of making investments

20. Limited Liability Partnerships - LLPs • Benefit of incorporation • LLP Agreement • Availability of BPR • Transparency for tax purposes

21. Companies

22. Companies • Corporate protection • Subject to Corporation Tax • Ownership of the assets • Shares – availability of BPR • Potential divisions of shares • voting (control) vs economic value • useful for succession • Family investment companies

23. Issues to Consider • Does the ‘transfer in’ trigger CGT • Transfer of property – may trigger SDLT • Balance between succession planning and lifetime tax rates • Drafting of the constitution

24. Charities

25. CharitiesIssues to consider • Corporate protection • Charitable tax reliefs • Public benefit & Reporting • Funding sources • Private Use & family involvement • Public access • Taxable trading (events, weddings etc)

26. SUMMARY • Lawyers love structures – but for good reason! • Choice • Asset Protection • Control • Tax Planning • Other points – prenups and postnups • BUT nothing is certain – ATED • OTS ‘simplification’ • Government scrutiny

27. Farrer & Co LLP66 Lincoln’s Inn FieldsLondon WC2A 3LH+44(0)20 3375 7000enquiries@farrer.co.ukwww.farrer.co.uk