The Family Farm: Don’t leave it to the fairies
The issue of the succession of your family farm is a sensitive one. Succession of
your family farm means that you are either dead or incapacitated. Not a pleasant
thought for either yourself or your children. It is, however, an issue that you
need to address. Proper planning avoids unnecessary stress, expense and acrimony
to those involved in the succession process: your surviving spouse, children and
grandchildren. When you create a business succession plan for your family farm, you take control.
Control, at a time when the future could be left to the fairies.
Consider the following questions:
- Do you want one of your children to continue on the family farm?
- Do you want to treat all your children fairly?
- Do you want to ensure the financial viability of your farm through the next generation?
- Do you want to ensure financial security for yourself?
- Do you want to prevent erosion of the family farm through family breakdowns?
Did you answer yes? Read on!
Have you seen your Adviser and your Accountant about the future of your farm?
If you have, then you are smart. You are also well on your way to securing your
family farm’s viability through the next generation.
Have you chosen a successor or a likely successor to take over your farming
business? Does this person know that they are the successor?
An integral part of the transfer of the family farm process is telling your family
what you intend. You want certainty for the next generation. Communicate with your
family members. Uncertainty may lead to an irrevocable division in your family.
Farmers, such as yourself, may have answered no to the above questions
because you perceive the transfer of the family farm as an event. But the reality
is that it requires more than an event. Transferring the family farm -your family
farm- requires a process. This process is best performed by you within a managed
and evolving business structure. You manage the entry and exit of generations. Your
connections with the past, present and future are slowly formed and slowly broken.
It is essential that you timely plan the succession process to make your family
farm and its managerial transference as natural as possible.
The transfer process of your farm can be broken into two components:
- Succession: when you transfer of managerial control; and
- Inheritance: when you transfer control of the assets and ownership.
You will already be aware of these facts if you are a second-generation farmer.
You have already been through the process: the initial testing period, the increased
responsibility that comes with partial succession of management control, to the
total transfer of management and control and ultimate retirement of your father.
This brings us back to the question:
“Have you determined the successor to your family farm?”
Maybe you haven’t. Nowadays, there are many more options open to your children than
were open to you. Similarly, there are also many more options available to you in
your choice of successor than were available to your parents. Some children simply
don’t want to stay back and work on the farm. Statistics show that only one quarter
to one third of farms have a successor. There are many reasons for this. Nevertheless,
the figures remain a significant barrier to the longevity of family farms. Will
it be a barrier to the longevity of your family farm?
It is very important that you start to consider the future plans for your farming
business. Research and hard gained experience has shown that farm transfer is either
addressed too late or not at all. This results in a loss of motivation, competence
and release of energy by the second generation, adversely effecting farm productivity
and viability. You don’t want this to happen to you and your farm. That is why you
have read this far.
Why do so many farmers (like yourself) leave the planning for the future of
the family farm until it is too late to effectively deal with its transfer?
A few reasons may spring to your mind. You are still way too active to be considering
the handing over of your farm. You really enjoy farming and being in control of
your family business. You might not have the confidence in your child’s ability
to adequately manage the farm. Besides you had to wait when you
received the farm from your father.
A survey of farmers conducted by the Rural Industries Research and Development Corporation
(RIRDC) showed the following reasons for the delay in the transfer of the family
- Can’t work out how to treat ALL children fairly
- Can’t think of alternative
- We are still actively involved in farming
- Fear of family breakdown in succeeding generation
- The cost involved in transferring title
- We don’t have sufficient information about how to transfer our farm
- Our family farm will only just support one family
- The financial future of farm too uncertain
- Too many problems associated with the transfer
How do your concerns fit in with those outlined above? Don’t be alarmed, it is not
too late to commence your planning. Remember the transfer of the family farm is
a process, not an event. It requires time to implement. The decisions
you make may be hard, but, leaving them until later, won’t make them any easier.
It is important that you make plans early. You can plan a composition of assets
that treats both non-returning family members and succeeding family members fairly.
You can also prepare for your retirement. Early decision-making takes the decision
out of the hands of the fairies; unless you leave it to them.
Do you find this discussion stressful?
Most of us do! Therefore, nothing gets done and the stress- your stress- continues.
There are a great many questions and emotions that you need to address. The stress
can spill over from your business into your family; and from the family into the
business. If you plan early and communicate these plans to your family members,
stress levels will be considerably lower. Your retirement will also be that much
Speaking of retirement: have you considered your retirement?
Statistics show that this most likely to occur when there has been a transfer of
ownership of the farm. A RIRDC survey asked a number of farmers to rank the source
of their retirement income. They gave the following results:
(1) The farm
(5) Investments (shares etc)
(3) Sale of farm assets
(6) Sale of non-farm assets
Superannuation was ranked as the second most likely source of retirement income,
but only 57% of those surveyed had Superannuation. This shows that some farmers
have not considered the future sufficiently, nor the possible problems they may
encounter in retirement.
Are you guilty of omitting to do some or all of the above?
If you think you may be susceptible to some of these problems, don’t stress. All
is not lost. You can still make plans to deal with the future. You may find the
following steps useful:
- Be prepared to talk about the transfer of your farm. Professional assistance is
available if you do not know how to approach the subject with your family members.
- The farm transfer is a process. It has to be negotiated by you
and your second (succeeding) generation.
- Attempt to understand the needs, concerns and perspective of the next generation.
Appreciate the difficulties the next generation faces if they do not know your plans.
- Involve and pay for a network of professionals services to assist you to develop
an on-going farm transfer plan.
- As soon as possible, commence a retirement plan. Its aim is to reduce your dependence
on the farm as the retirement fund.
- Recognise that the transfer of your family farm is something that needs managing
as much as any the part of your family farm business. Your will may be chosen as
a final vehicle to transfer ownership, but it should not be seen as the whole farm
transfer process. The transfer of your family farm needs to be considered as an
on-going and managed process, rather than a single event. It is important for you
to commence the transfer on your terms.
- View yourself as the initiator in most instances of any discussion about your farm
transfer. It is extremely difficult for the second generation to initiate discussion.
“So,” you say, “this may be very well and good, but where do I start?”
This is a very good question!
The answer is going to be different in each different farmer’s situation. But generally
speaking, every farmer already has an on-going relationship with an Accountant if
not a Financial Planner also. They are a powerful combination. Your Accountant and
your Adviser already know you and your farming business’ position. Therefore, they
are in the best position to give you advice on your requirements.
You then need to communicate your intended plans with your selected Successor, and
negotiate a plan with them that is suitable for you both. You then need to seek
the assistance of a Succession Planning Lawyer to create a Will and a Business Succession
Plan that ensures your position is looked after. This creates certainty and ensures
that your wishes are carried out. The assistance considers your best interests.
Your Successor needs to seek her own advice from a different lawyer.
Counselling may be required during this process; whether for the Bill associated
with the professional services (!) or to manage the stress involved or to facilitate
an agreement between you are your Successor on your combined future plans.
These services work very effectively together in a network to produce a plan that
is the most efficient and effective for your business- the family farm. This network
works with the farm family and identifies impediments to reaching agreement in the
family. But what about costs?
Can I afford to transfer the family farm?
Farming Succession Planning does not necessarily mean any transfer of the farm.
However, the cost involved with the transfer of the farming business often consists
- The stamp duty on the transfer of land
- The fees associated with the use of professional advice
- Capital Gains Tax
It may come as a surprise to you to learn that if your farm is a covered by Part
III BAA of the Stamp Act 1921 (WA), then you can apply to the
Commissioner to have the stamp duty exempted or partially exempted. The application
of this Act is very broad. It eliminates the major cost barrier involved in the
transfer of your family farm.
In the wider scheme of things, professional fees are an investment by your business
to assure its future viability. Your use of the professional services will reduce
unnecessary costs in the long run. You are provided with tax effective strategies.
It reduces the possibility of your wishes not being carried out in the future, when
you are not in a position to enforce them. It may be uncomfortable and difficult
for you to approach these issues for the first time. Timely planning by you places
the control of succession issues and your family farm, firmly in your hands. It
also reduces the possibility of your family farm’s future being controlled by who
knows who. Fairies, for example.
Start the process today
Civic Legal are happy to meet with you, your Accountant and Adviser and
discuss these issues in greater depth. As a private law firm, we only take
instructions via your own Lawyer, Accountant and Adviser.