“Five Steps for Succession Success is a collaboration between Kelly Kelly Legal and Financial Services SA”
By Kelly Morgan
The transfer of farming land and assets to the next generation can raise different concerns for each family member or family group. Careful planning is vital if you want to avoid adverse implications such as legal challenges to the estate or tax complications associated with asset transfers.
The good news is, appropriate succession planning strategies can lead towards a positive outcome for everyone.
Successful succession planning involves considering everyone’s needs – the retiring generation; farming adult children and their spouses; non-farming adult children; and grandchildren.
For the retiring generation. . .
In our experience, some of the biggest concerns and questions that the retiring generation have about transferring land ownership to the next generation include:
- How will we pay our bills and living expenses after we transfer our farming assets?
- We’ve worked so hard, but once we transfer the farm to our sons, will we be able to afford to enjoy our retirement?
- I don’t want to have to “beg” every time I need some money.
- What if our children don’t run the farm like us and jeopardise everything we’ve worked so hard to accumulate?
- Won’t the farm be at risk if any of our children go through a divorce?
- How can we afford to look after our non-farming children too?
For farming families and their spouses. . .
Succession planning can help the smooth transition of farming operations to the next generation. The process can assist in overcoming some of the anxiety or trepidation faced by the next generation, including:
- The farm has always been Mum and Dad’s domain; we don’t really know what we’re “worth” in terms of borrowing and planning for our financial goals.
- We want to be able to expand farming operations without Mum and Dad looking over our shoulder.
- We need to consider how we’ll support our children.
- Will we have to “pay” for the farm all over again to fund Mum and Dad’s retirement?
- My wife is concerned that we won’t really have control over what we’ve worked so hard for.
- How do we talk to Mum and Dad about the future? We don’t want to appear greedy but every time we try to talk about it, it ends in an argument.
For non-farming children. . .
Many non-farming children may feel removed from the family and family business so it’s important for the succession planning process to consider their concerns too:
- I’m not involved in the farm so I’m sure I’ll completely miss out on an inheritance.
- I’m happy for my brother to be part of the family business with Mum and Dad, but what if he splits up with his wife? Would she get half the farm and I’ll miss out?
- My brother who works on the farm is able to send his kids to private school. If I’d chosen to work on the farm would my kids be there too?
- While I’m not involved in the farming business, my young son wants to be. What can I do to help him become part of the business in the future?
Strategies for a seamless transition
One of the most important aspects of succession planning is open communication with all family members about the farm’s long-term direction and everyone’s personal financial goals. Setting a plan for the future can have many positive impacts for the family group. It can reduce any strain on marriages caused by concerns about financial security; offer an opportunity to plan for the future; and, often, kindle a renewed enthusiasm for involvement in the family business.
Strategies to help the next generations can include transitioning some land, placing land in trusts for the future, or handing over control of some elements of the farming business to help provide autonomy and an incentive for the future.
Planning the transfer of ownership of farming land and assets can include certain conditions such as payment of a regular ‘income’ to the retiring generation; allowances for their expenses or holidays; and/or a commitment to cover their aged care costs or medical expenses.
Using a binding deed, such as a Deed of Family Arrangement, to gift land enables the family group to record required provisions. These may include retirement expenses for the retiring generation or school fees for grandchildren. Establishing a binding deed not only takes account of the needs of each stakeholder but also addresses budget requirements for the associated expenses too.
Benefits of collaboration
By collaborating with your financial adviser, we can also identify other strategies which can make the most of your financial circumstances. For example, allocating non-farming assets within your Will for reimbursing expenses paid out as part of the succession planning process, such as aged care payments. Also, farming children may consider implementing personal insurances to provide for their spouses without impacting on the farming business if the unexpected were to happen. Other non-farm assets such as property, superannuation or life insurance can also be used to provide a legacy for non-farming children or grandchildren.
A key benefit of involving qualified professionals in your succession planning is that they are practiced in handling potentially difficult conversations about what is a “fair deal” and in helping to create clarity for all parties. Often, successful succession planning will involve a series of family meetings to set clear expectations about the future of the family business and to help plan accordingly for each family group.
By understanding the key issues and concerns of each family member, we are able to tailor a succession plan to legally outline your wishes and mitigate concerns.
Contact the team on 08 8664 1162 or email firstname.lastname@example.org to discuss your succession planning requirements and arrange an obligation free appointment.
Five Steps for Succession Success Articles
Step 1: Setting Expectations – Great expectations I A successful strategy for your family and your business
Step 2: A Structured Approach – Everyone at the table I We thought we were doing the right thing…
Step 3: Identifying Everyone’s needs and concerns – Walk a mile in their shoes
Working in collaboration for a number of years, Financial Services SA and Kelly Kelly Legal offer insight and expertise in rural and family farming business succession planning. Accustomed to opening up meaningful discussions, we cut through technical-talk in favour of straight-talk, to offer integrated solutions that consider the often-complex nature of succession plans to incorporate business transition arrangements, wills and estate planning and retirement and superannuation planning.
Financial Services SA is a multi-discipline professional services practice offering farm and business consulting, financial planning, specialist rural finance and mortgage broking. Financial Services SA has a particular interest in developing and implementing practical and achievable succession plans and integrated solutions to consider all aspects of personal, business and farming lives.
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