12 January, 2018
Ben Wilson, a solicitor who specialises in Wills, Trusts and Probate disputes considers how the promise of an inheritance of a family business can be enforced, if that promise is not kept.
"One day, all of this will be yours" is a saying often heard when family business owners are succession planning. Promising to pass a family business to a younger generation can provide peace of mind and often cheap labour for the business owner; and motivate younger generations to work hard and ensure the business is successful.
However, it is not uncommon to see these promises to not come to fruition, and when a business owner dies the family business to go to another family member or an unrelated third party.
In these circumstances the disgruntled individual can often utilise a legal principle known as "proprietary estoppel" to enforce this promised inheritance. In a nutshell, a claim in proprietary estoppel is based on facts where land or property (usually a farm) should, as far as the Claimant is concerned, have passed to him or her for the following reasons:
A recent case heard in the High Court provides a good example of a proprietary estoppel claim, and also involves a challenge to the validity of the will on the basis of lack of mental capacity and undue influence.
The claim involves a son, Sam James, suing his family for a portion of the £3m farming estate and business his deceased father had left to his wife and daughters, with Sam claiming he was promised the farm.
Sam, who was the son of farmer Allen James, also claims that his father did not have sufficient mental capacity to make the will as he had dementia, and that his mother Sandra pressured his father into making the will.
It is also Sam's case that he left school early and worked in the family haulage and farm business for nearly 35 years. He says he toiled increasingly hard as his father grew older, eventually becoming the "driving force" of the business.
In 2004 Allen, who was described as a "self made" but "frugal" man, gave instructions to a solicitor to draw up a will which gifted the farm and business to his son. However Sam claimed his mother took exception to this will and intercepted it, meaning it was never signed.
As the will was never signed, the majority of the assets went to Sam's mother and sisters. Sam is trying to enforce his father's promise that he would inherit the farm.
The ruling will be given by the judge on a later date, but this is an interesting, and surprisingly common, example of a claim in proprietary estoppel.
Sam was promised the farm and the business by his father, and he had an expectation of receiving it on his father's death. He worked for many years driving the business forward with the expectation it would one day be his. Therefore, on the face of it, Sam's claim may be a viable one.
In order to avoid litigation between family members after death, there are a number of lessons from this case. The first is fundamental and simple but often overlooked: communication. It is important that all parties are clear on what will happen upon death or retirement. It will allow people time to think about it and react to it while the business owner is able to deal with any issues and potentially make adjustments.
This case also highlights the importance of getting professional advice and proper succession planning from an early stage. Allen did not seek professional advice soon enough meaning his affairs were not organised when he lost capacity and then died.
If you are looking for any more information with regards to our services view our Wills, Probate, Tax and Trusts section. You can also contact Ben Wilson in our Wills, Probate, Tax and Trusts department via Ben Wilson email or phone on 0333 207 1130. Alternatively send any question through to Forbes Solicitors via our online Contact Form.