Family farming businesses face a unique combination of legal, financial, and emotional pressures, all of which make proactive planning essential.

Why succession planning is particularly complex for farming families

Farming families encounter challenges not typically seen in other types of businesses, including:

• High-value but illiquid assets – farmland may be extremely valuable but cannot easily be sold to release capital
• Children with differing levels of involvement – some may work full-time on the farm, others not at all, complicating questions of fairness
• Desire for gradual transition – many farmers want to retain control during their lifetime while easing the next generation into ownership
• Keeping the farm in the family – there is often a strong wish to ring-fence assets so they remain within the bloodline and protected from outside claims

For generations, family trusts have been a central tool in managing these issues, helping to preserve land, smooth intergenerational transfer, and safeguard the farm from external risks. In recent years, however, the increasing use of prenuptial agreements (prenups) has led some to ask: do we still need trusts?

The role of prenuptial agreements

A prenuptial agreement is a contract signed before marriage that outlines how assets will be treated if the relationship ends. When done correctly, a prenup:

• Provides direct protection against relationship-property or marital-property claims
• Can ensure a child’s inheritance or farming interest is kept separate from their partner’s assets
• Offers clarity and reduces the risk of costly disputes in the event of separation

For farming families, this can be invaluable, particularly when a child is expected to inherit land or share ownership of a farm business.

However, prenups have limitations:

• They rely entirely on the willingness of both partners to sign, which can be emotionally sensitive and sometimes contentious
  
• They protect assets on separation, but they do not help with wider estate planning, tax issues, asset management, or long-term succession
  
• They offer protection at the level of the individual child, but they do not create a structure for managing or controlling farm assets over generations

For these reasons, prenups are helpful, but they are not a substitute for a comprehensive estate plan.

Why trusts are still widely used

Despite greater scrutiny of trusts in recent years, they remain one of the most powerful and flexible tools for farm succession planning. Their benefits include:

1.  Long-term flexibility - the trust can be left open as long or short a period as required (although technically the maximum trust period is 125 years), enabling a gradual, measured transition of ownership and control. This is particularly useful when younger generations are not yet ready, or not yet in agreement on how the farm should be run.

2.  Control retained by trustees - although settlors cannot benefit from the trust, they can continue to act as trustees, allowing them to:

• Remain involved in decision-making
• Oversee management of the assets
• Control when and how income or capital is appointed to beneficiaries

This level of ongoing stewardship is often vital for farming families who want to protect the farm from premature break-up or sale.

3.  Asset Protection - by the assets being held in a discretionary trust for the benefit of multiple beneficiaries, if one of the beneficiaries were involved in a divorce, the argument would be that the assets are not specifically ear-marked for that person and so are protected. This effectively ring-fences the assets from a claim (according to current practice).

However, involving trusts into a farming business can be complex, particularly if the business operates as a partnership rather than a company. Introducing a trust as a partner may create potential Inheritance Tax (IHT) issues, such as ‘gifts with reservation of benefit,’ (though allocating a profit share can help mitigate this.)

Summary

Effective estate planning requires careful consideration of both personal relationships and business needs.

It is also important to understand the significant legal differences between passing assets directly (which may be protected by a prenuptial agreement when applicable) and transferring assets into a trust. It is therefore crucial to seek legal advice before taking any action.

Additionally, there are notable tax implications associated with these transfers, which fall outside the scope of this article.

A robust succession plan balances legal protection, tax considerations, and practical management needs.

Our Tax Team regularly provides guidance on the tax aspects of trusts. To learn more about trust planning, please reach out to a member of our team.