Can you keep the farm in the family?
23 Oct 2013
By Shadforth Financial Group
Many third and fourth generation farmers aim to pass on the family farm to their children just as their fathers, grandfathers and great grandfathers did before them.
But is the dream fading? Can they really afford to? Or is it No Plan = No Succession!
Like anything in life 'if you're failing to plan, you're planning to fail' and planning is the key to farm succession.
So where do you start?
The most important starting point is the 'family discussion' about the aims and goals of each family member. Surprisingly, this often doesn't occur before the planning stage has already begun and sometimes for good reason. However, at other times it's because this isn't an easy discussion to have with all who have a direct or indirect interest in the farm.
Before assembling all the family together, it's a good idea to have honest and robust discussions with key advisers about the future financial viability of the farm – particularly its ability to support more than one family and grow profitability over time. If your farming enterprise cannot pass this initial test, the sobering family discussion may have to be about selling the farm and ending the family tradition.
The importance of professional outside help
The next step would be to get everyone together with a facilitator to discuss the farm's future, flesh out everyone's interest in being involved in the ongoing enterprise, what they can actively contribute or whether their interest is purely passive.
I suggest a facilitator because of the inevitable emotion attached to the farm. Both those who've spent their whole lives on the farm and those who grew up on the farm but moved away, often retain a strong sentimental attachment from their childhoods.
The facilitator may be the farm's existing adviser, or an external consultant with experience in this area. This person may also be the one who co-ordinates the other personal and business relationships you have. These can include your tax accountant, financial adviser and family lawyer who all ultimately help increase the level of expertise involved and ensure no stone is left unturned when developing the succession plan.
Don't make assumptions
Never assume which family members will want to continue the family farm. I've found from experience that those who've stayed to work the farm with Mum and Dad don't necessarily see farming as their life's ambition whereas those who left the farm to seek further education and pursue careers elsewhere sometimes have a burning desire to return and take up the farming mantle.
I've also found that siblings who categorically state they don't have any interest in farming or in the farm itself, should be included in the discussions and in the succession plan. It's never safe to simply leave the farm to the children working it in your Will on the assumption that the other siblings will be happy with this decision. Despite providing financial assistance with cars, homes and bequests of non-farm assets to them in the Will, many siblings challenge the validity of their parent's Wills in pursuit of what they believe to be their fair share of the inheritance.
When to start planning
Importantly, planning should start many years before you retire and the farming business is transitioned to the next generation. This provides the time needed to consider:
- ownership structures for both the farming business and the land
- off farm investments and on farm investment strategies
- cash flow requirements plus debt levels and management
So at what stage is your farm succession plan or do you have one at all?
If the answer is you haven't got one or you are still thinking about it, then it might be time to seek help with your farm succession plan from a professional adviser.
If you are seeking financial advice please contact us on 1300 308 440 or enquire online.