When undertaken well, succession planning can be beneficial to all parties involved, however there are many pitfalls to watch out for. For a farm owner, it means 'opening up the books' and laying bare the true financial state of the farm. For the next generation, it means the realisation that a farm, like any business, has liabilities as well as assets. And for all involved it can be a period of increased stress, tension and conflict as all parties will inevitably have different interests throughout the planning. At times, not every child will be treated equally – some will be secure outside the farm, while others need to recognise the inherent risks of taking on the farm beyond just the bottom line. Ultimately, the entire process exposes the family to the world of business, where emotions and fondness are finely balanced with fairness of succession and the economic success of the family farm.
There are plenty of steps that can be taken to ease the tension and make the most of the succession process. Each situation will be unique, but here are a few of our tips:
- The parents/farm owners should sit down and come up with a fair plan themselves before including the children in the discussions.
- A lawyer, accountant and a farm consultant will all add value to the process, but only if you find ones that are more than just 'form fillers'. Get them involved early and it will likely save you time, headaches and drama in the long run.
- All parties involved may want their own independent legal advice, just so they know their interests were well looked after.
- Consider holding the farm as a joint venture company, with a trust holding shares to the company. This can be preferable to holding the farm in trust, and being at the whim of the beneficiaries upon the farm owner's death.
- If held as a joint venture company, you are also able to slowly sell shares to the children over time. You can pay a management salary to one of those children if they are running the farm in the day to day, and you can look to gift other children shares as time passes.
- If the ownership structure is a Trust one of the most important documents is a Memorandum of wishes or a Resolution that clearly sets out the intentions of the Trustees (if the trustees are the parents on the farm) on their death. This is much more important than a Will if the majority of the farming couples assets are owned by the trust.
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