Importance of succession planning to keep the family farm in the family
Making sure the family farm or family business stays in the family might seem pretty straightforward. But a number of complex challenges can arise, and family disputes are almost inevitable if the process of transferring the farm or business to the next generation is not handled with care.
I grew up in the bush and know how important it is to get the legal details right to have a smooth transition to keep the family farm or family business in the family.
What happens when parents are approaching retirement?
Let’s look at a fairly typical case. The parents of adult children own and operate a farm that has been in their family for generations.
Of their four children, only one works on the farm, which he has done for ten years on a minimal salary. The parents are now approaching retirement. They want to continue living on the farm and having a say in any farm decisions.
The parents also need to think about what they will live on during their retirement. If they transfer ownership of the farm to their children, how do they strike the best balance for themselves, the son who has worked hard on the farm and the children who have not? Does the farm earn enough income to support two generations living there? Are there debts?
Early succession planning provides clarity and pre-empts disputes
It is important to have a legally drafted farm succession plan. The best way to handle it is to make sure all affected members of the family are involved in the discussions.
It is a process that allows everyone to have complete clarity about the ownership and operation of the family farm. It removes the uncertainty, gives peace of mind and avoids possible family disputes.
It is vital to create a succession plan before your hand is forced, such as by the death of a parent. Unlike a will, which can be disputed, a written farm succession plan means things are clear to everyone from an early stage.
Need to involve all family members who are affected
It is essential that all family members who are affected confer with one another and plan for the future of the farm or family business. They need to consider such matters as the value of the property, its income and debts, retirement plans, whether any children work on the farm and their future plans.
A succession plan is then devised based on that family’s unique situation. For example, a ten year plan may slowly give ownership to the children, with a larger stake going to the son working on the farm.
Benefit of obtaining expert legal advice
A lawyer specialising in wealth protection can give advice on ways to transfer the farm to the children without attracting stamp duty.
There is no one-size-fits-all plan, so getting expert advice is important. Early planning for succession of a family farm or a family business makes the process much easier in the long run and provides peace of mind.