At some stage in life, most farming families will need to consider wondering whether to transfer your farming land to one or more of your children as part of your retirement and succession planning?
A farm is a particularly complex asset to include in your estate plan. In most cases, the farm itself is a valuable asset that is essential for conducting the family farming enterprise. This makes it difficult to pass on a farm as an ongoing business, especially if the farm constitutes the family’s main or only significant asset.
The tradition of passing on land to one child through a will and leaving a lesser inheritance to the other child/ren. Times have changed, and there is a social and legal expectation that parents will treat their children fairly in their testamentary arrangements. The traditional approach could leave the estate facing an inheritance claim and see a Court overrule the terms of the Will. This may lead to the farm being sold, and the proceeds distributed fairly among the beneficiaries. Hardly a desirable outcome for a farming enterprise that has been in the family for generations.
Succession planning for the family farm can take years to formulate as challenges, goals, and aspirations change over time.
What should be considered in a farm succession plan?
If passing on your farm to the next generation is important to you, you can take steps to manage farm succession. A succession plan should not start as an argument between siblings who expect farm assets to be split overnight. Planning should be carried out in a thoughtful, calm manner, with consideration of the following:
- What will be my source of income after retirement? Will any of it derive from the farm?
- What are the needs and expectations of my family members? Are they interested in working on the family farm? If yes, what role do they see themselves doing?
- Should multiple successors be treated equally? For example, bequeathing an interest in the family farm to a child not currently working on the farm may be unfair to one who has dedicated a lot of time working on the farm. In this case should the child actively working the farm buy out their sibling/s? Is this even possible?
- What is the appropriate structure in which to hold assets, and should these be transferred to new or different structures?
- What are the capital gains tax and stamp duty implications of any proposed transfers? Most of us are aware that there can be substantial tax and duty consequences to consider when transferring assets which must be factored into your plans.
- Are you eligible for a capital gains tax concession?
- Do you satisfy the criteria for a stamp duty exemption for a family farm transfer?
The starting point is often communication.
Our experienced sucession planning lawyers Peter Westley and James Norcock can work through this with you, your children and your accountant or financial advisor. It is a difficult decision to consider when you will want to retire and whether you want to stay involved in the running of the farm in some capacity.
We can assist you formulate a plan and bring that plan to fruition to see the transfer of the farm occur in a manner which takes into account the complex and competing needs of all family members.
This may involve some difficult conversations, but working with us as an independent facilitator or business advisor may be help you reach a consensus. A solicitor can help to ensure that any agreement you reach accounts for events that may change the plan – such as a death or divorce. A Deed of Family Arrangement can offer a balance between certainty and flexibility and ensure all parties know of their future entitlements.
Conclusion
This information is for general purposes only. When it comes to farm succession planning, there are many considerations and no one-fit-solution, which is why it is important to engage relevant professionals to help strategise and structure the ideal plan. Doing so, can help ensure that your succession plan is feasible, will have a long term tax efficient structure, and minimise the potential for disputes.
Farm succession requires you to begin your estate planning well before the farm transfers to the next generation, with a focus on open communication and realistic expectations. As with any other family-owned business, the enterprise will benefit if everyone knows what to expect and there is a smooth transition when the time comes.
If you or someone you know wants more information or needs help or advice, please contact us on 08 8762 3600 or email [email protected].