Farming families risk creating problems and expense or reducing their options by leaving succession planning too late. Sometimes this can result in the farming property being sold or broken up. Sometimes it’s the family that breaks up.
Estate planning involving all family members and taking into account individual expectations can often prevent problems, such as breakdowns in family relationships and trust, emerging later on.
Instead of a planned handover of management, control and ownership of the farm over time, families often wait for a major life event before considering farm succession and passing on the enterprise to the next generation.
These events can be the older generation wanting to retire, a son or daughter returning home to work on the farm, a new marriage or death in the family, or a housing issue. Ideal planning occurs when the family makes an informed decision before that happens in conjunction with all interested parties when decisions can be made by choice and not necessity.
Often both generations do not negotiate their wishes, their expectations, remuneration, holidays, housing issues, what they stand to inherit and what financial support is needed for off farm family members and parents in retirement.
It is very traumatic for the farm family that has not planned for succession when a situation dawns on them and they realise the farm needs to be sold.
Good succession planning should encompass early planning around a profitable business with off farm investment to provide for the older generation’s retirement and the needs of off farm siblings. It should begin by managing the expectation of farm family members.
Succession Planning:
Understanding families is the key to effective estate planning:
Having a clear understanding of your family at the outset of the planning process helps ensure that the plan suits the particular needs of your individual families.
The best source of information about families comes from you, who has the clearest knowledge of family strengths and weaknesses and can guide in the preparation of estate plans that fit your circumstances.
The challenge is getting family members to accept decisions that need to be made:
Succession (Estate) planning involves arranging a family’s assets and circumstances to ensure that you derive from those assets, maximum use and enjoyment at a minimum cost in tax and duties and to put in place a plan ensuring that the farming assets are passed to the next generation at the same time ensuring your financial security in retirement and providing bequests for “off farm” children.
The planning process:
The process require a review of your circumstances and farm structure and our formulating a plan and recommendations which include:
- consideration of transfer/gift of assets to children;
- introduction of children into the farm business;
- your retirement, if applicable;
- asset protection;
- changes to the farming structure;
- effective wills;
Your affairs are unique and require individual attention. Succession planning requires an initial comprehensive understanding of your financial and personal needs, asset holdings, your needs and plans and those of your children, especially those actively involved with the property.
Asset Protection:
Generally the main concern is the protection of the family assets. This is because:-
- we want to ensure that our personal and business assets are protected for future generations;
- we want to ensure that our assets are protected from attack from creditors, bankruptcy etc.
- we want to ensure that the assets that pass to our children are protected from creditors, bankruptcy, marriage breakdown, etc.
- we need to ensure the security of our cash flow and financial security in retirement;
- the society we live in is increasingly at risk from litigation.
Asset protection is a real concern and an integral part of a succession plan.
Family Protection:
Another major concern is to avoid family dispute and breakdown of family relationships. Your succession plan needs to consider each family member and consideration given to their circumstances. In most situations it is not possible, and sometimes not fair, to treat all children equally. Our experience is that children are more likely to understand if consulted and become involved in the planning process.
A succession plan needs to identify any potential problems and make suggestions and recommendations to try and avoid conflict in the future.
Other Topics considered in Succession Planning:
In considering Succession Planning, there are other issues that may be relevant to your circumstances and questions.
These other issues you may wish to address include:-
- Transfer of assets to children by gift or otherwise during your lifetime;
- Existing business / farm structures and recommended changes;
- Options and Buy / Sell Agreements;
- Retirement;
- Pre-nuptial and de-facto Agreements;
- Guardians for children;
- Enduring Powers of Attorney;
- Advance Health Directives;
- Insurance / Superannuation;
- Family challenges to your Will and Estate;
- Retention of assets in the family.
Accounting and Financial Advice:
Your solicitor’s advices deal with legal issues only. Taxation, Superannuation and Income Generation issues are matters for the expertise of your Accountant and Financial Advisor and you should consult them in regard to those matters. A sound succession plan can only be achieved by combining your own family’s goals with good legal and financial advice.
Article kindly supplied by Finemore Walters & Story Solicitors.
