Legal Structures for Succession James Carleton 19 September

Legal Structures for Succession James Carleton 19 September 2019

Summary Ø Wills Ø Trusts Ø Partnerships Ø Companies Ø Charities 2

Wills 3

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

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

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

Trusts 7

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

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

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

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

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

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

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

Partnerships 15

Partnership Ø General Ø Limited Liability Partnership Ø Limited Partnership 16

Ø Express or Implied General Partnership Ø Partnership Act 1890 Ø S 1(1) – relationship between persons carrying on business with a view to profit Ø S 2 – rules for determining existence of a partnership Ø Joint ownership not ‘of itself’ sufficient Ø Nor the sharing of gross returns Ø Receipt of a share of profits is prima facie evidence Ø Between named partners Ø Joint and several liability 17

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

IHT Treatment Ø S 105(3) – is there a business carried on for gain? Ø 100% relief if relevant business property or an interest in a business Ø 50% - if the land/buildings are owned by X but used by the business Ø S 105(3) – relief disapplied if the business is ‘wholly or mainly’ one of making investments 19

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

Companies 21

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

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

Charities 24

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

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

Farrer & Co LLP 66 Lincoln’s Inn Fields London WC 2 A 3 LH +44(0)20 3375 7000 enquiries@farrer. co. uk www. farrer. co. uk 27