How will your farmland, agricultural business, stock, vehicles, equipment and other assets be transferred to the next generation?
A carefully prepared Will is a good start, however this will not be enough to ensure the proper transfer of farming assets and control of your entities such as trusts and companies to your chosen beneficiaries, or to take care of you in your retirement or if you suffer incapacity. A well thought out estate and succession plan will ensure a smoother transition of the farm assets and entities to your chosen successor/s.
Your plan should take into account how your assets and the control of entities are transferred during your lifetime, as well as on your death and include:
- Review of existing or preparation of your Estate/Business Succession Plan;
- Review and update of the business structure, trust deeds and company constitutions;
- Review and update of partnership, shareholder and other agreements with family members regarding the running of the business and use of the farm land, stock and equipment;
- Preparation of Will, Enduring Power of Attorney, Enduring Power of Guardianship and other estate planning documents as required.
The plan should also include a strategy for your retirement, whether this is off farm or with you remaining on the land. The funding for your retirement should be carefully considered, including planning for a sufficient superannuation fund or other source of retirement income.
Often there are factors that make this planning process difficult:
- The ability to have meaningful succession planning discussions with your family;
- Only some of the next generation may be involved in the running of the farm, putting pressure on to provide for the non-farming family members;
- Your needs may be different, or in conflict with, the needs of the next generation of farmers.
Given all this, it is not surprising that farming estate and succession planning is often pushed to the bottom of the priority list or only dealt with when a major life event occurs. However, preparing for the future can be a relatively straightforward and inexpensive process if done in a timely manner, with the right advisors.
Juggling the needs and expectations of family members when engaging in estate and succession planning can be difficult, however, it is a process that needs to be undertaken to safeguard the future of your loved ones. This is particularly important if you are a farming family as not only do have to think about your family, you also need to consider how your farmland and other farming assets will be transferred and maintained to ensure the longevity and future success of your farm.
Family members will usually appreciate open communication and clarity about how your farm business and assets are to pass, rather than facing a surprise later. If you avoid having these frank conversations before your death or incapacity, it could result in additional costs, uncertainty and the breakdown of the relationship between your family members. If your Will or estate is contested, this legal action may put strain on the ability of your farm to operate smoothly and profitably. The lack of clear control of the farming business and entities may restrict the day to day farming operations. This may be avoided if an appropriate plan is in place.
Other factors that have created barriers to successful estate and succession planning are the potential legal and tax issues and liabilities that are inherent in passing the control and ownership of business entities, land and assets of a farm. By obtaining legal and accounting advice early in the succession planning process, farmers have the best opportunity to identify potential risks and costs and to better understand the implications of their succession plan.
By discussing the legal and taxation implications that are guiding the decisions underlying the succession plan, family members who may otherwise feel uncomfortable or threatened by the plan, may become more understanding and accepting of it.
Having these discussions can:
- Address any previously unforeseen legal or taxation issues;
- Allow frank discussion on the expectations of retiring farmers and the next generation;
- Provide certainty to family members on the plan for the next generation;
While it is not always an easy discussion to have, in doing so, a family farming business is given the best opportunity to continue successfully into the future as it passes from one generation of farmer to the next.
Estate and succession planning is not a task that should be put off but is one that should be given as much attention and time as any other essential farming task.