Are you a farmer and wondering whether you should 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 succession planning.  In most cases the farm itself constitutes the family’s main or only significant asset, and it is essential for conducting the family farming enterprise.

The tradition of passing the farmland to sons, while daughters received a lesser inheritance, is problematic as there is now a social and legal expectation that parents will treat their children fairly in their succession planning.  The traditional approach may leave the estate facing a claim from a beneficiary under the Family Provision Act 1972 (WA) and lead to an order from the Court that the farm be sold and the proceeds distributed fairly among the beneficiaries. This is hardly a desirable outcome for a farming enterprise that has been in the family for generations.

What should be considered in a farm succession plan?

Succession planning of your farm 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?
• Does the proposed successor have the required skills and experience to run the farm effectively? If not, what training do they need to help develop their skill set?
• 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 feasible?
• Consider the key relationships you have developed with any employees, suppliers, and clients that may be needed to sustain the successful commercial aspects of the business.
• What is the appropriate structure in which to hold assets, and should these be transferred to new or different structures? What are the tax and 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.

The starting point for communication is your own plans for retirement. You should consider when you will want to retire, whether you want to stay involved in the running of the farm in some capacity, and how will you fund your own retirement.

Once you have a plan, you can consider who will take over the business of the farm and how the asset of the land will be handed down. This is likely to involve some difficult conversations, but an independent facilitator or business advisor may be able to help you reach a consensus, and the lawyers at TLS will be able to help you effect your succession planning.

Conclusion

When it comes to farm succession planning, there are many considerations and no one-fit-solution, which is why it is important to engage legal and accounting professionals to help strategise and structure the ideal succession plan. Doing so can ensure your succession plan is feasible, will have a 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 farming enterprise will benefit if everyone knows what to expect and there is a smooth transition when the time comes to hand down the farm.

This article contains general information only. If you or someone you know wishes to have more information or needs help or advice, please call us on 6383 5551 or email us at re*******@*ls.law.