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Doug

By Doug

I'm the Director at CS Law

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29.05.17

Farm Succession Planning

With the average age of New Zealand farmers rising, many farmers are facing the challenge of deciding what will happen to the farm after they have gone. What is needed is a formal farm succession plan.

An effective succession plan enables a smooth transition of farm ownership and control to the next generation with appropriate legal structures in place which serve the whole family.

Many people shy away from getting to grips with a plan and there are often significant roadblocks including:

  • The parents being afraid or unsure of how to talk with their children about what they intend
  • The increasing average size of the economic farming unit raises capital requirements and exposes the farm business to more debt
  • The difficulty in keeping up the momentum in implementing the farm succession plan, and
  • Acknowledging that every farm and family is unique and there’s no one-size-fits-all solution.

 

Where to start?

A farm succession plan first requires you (the parents) to start a conversation with your family and professional advisors about the future.

The first thing you’ll need to decide is whether the succession plan has the farm at the centre of the decision-making or the family who own it. This is crucial.

If the farm is the centre of the succession plan then your decisions will revolve around how to maintain and develop the existing farm so that it doesn’t fall out of the family ownership.

If the family is at the centre of the succession plan then decisions regarding what to do with the farm will revolve around what is best for the family – both now and in the future.

Involve the right people

In a farm succession planning exercise a team approach will bring about the best results. This team should include you both, your lawyer, accountant and banker. It’s critical that all these professional advisors are prepared to work together and listen to your real wishes.

Family expectations

It’s important that the expectations of each child are managed well. Have each of your children expressed their expectations regarding the future farm ownership and what role they hope to play? A family meeting as part of your succession planning creates an opportunity for open discussion amongst all members of the family.

Regardless of who is actually working on the farm it’s a good idea to listen to the whole family. You may be surprised who would like the farm retained and who is not concerned so much.

Is your plan viable?

If a particular member of the family is appointed as the successor in terms of farm ownership it’s important for everybody to have confidence that the successor has the skills and aptitude to run the farm successfully.

The plan needs to realistically address the capital requirements of the family members who continue the farm and the level of debt that’s sustainable. The goal is to ensure success for the next generation.

A good plan addresses these questions:

  • Would it be equitable for non-farming members of the family to allow the farming member of the family to receive a greater amount of assets when you both die?
  • Does the family believe treating everybody equally is more important than maintaining farm ownership in the family name?
  • How do you balance the interests of your non-farming family members in the succession plan? Are there other resources for them?

You’ll need to get professional advice on what farm ownership structures should be established and the obligations you will both have to non-farming family members compared with the farming family members. You’ll also need advice about the Family Protection Act 1955 and the impact of the Property (Relationships) Act 1976 on those decisions.

You’ll also need to make sure your Wills are up to date, regardless of whether or not trusts are in place. If you have a trust, or several trusts, you should also sign a Memorandum of Wishes setting out your intentions for those trust/s.

Making it happen

A major issue in farm succession planning is that the issues can become too hard and the roadblocks we talked about earlier start to appear. It’s becoming increasing popular to appoint an independent person to be responsible to keep up the momentum so that the plan is put in place, it’s implemented and then reviewed regularly to ensure it’s actually working.

You are unique

Every family is unique; it has a different number of children, debt loading, skill base and farm characteristics as well as expectations from each child.

Don’t delay in getting your farm succession plan up and running. In the long run, you’ll be pleased you decided to tackle this now.