CS Law Director Doug Rowan recently wrote a column for the Horowhenua Chronicle on Farm Succession Planning.
With the average age of NZ farmers rising, many farmers are facing the challenge of deciding what will happen to the farm after they are gone.
What is needed is a written farm succession plan. An effective 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 road blocks such as the farmer/parents being afraid or unsure of how to talk to their children about what they intend; the increase of the average size of the economic farming unit raises capital requirements and possibly exposes the business to more debt; the difficulty in keeping up the momentum in implementing the farm succession plan; acknowledging that every farm and family is unique and there is no one size fits all solution.
So where do you start? A farm succession plan first requires the farm owner to initiate a conversation with their family and professional advisors about the future. The farm owner will need to decide 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 the decisions of the farm owners will resolve around how to mantain and develop the existing farm so that it does not fall out of the family ownership. If the family are at the centre of the succession plan then decisions regarding what to do with the farm will resolve around what is best for the family both now and in the future.
In farm succession planning, exercising a team approach will bring about the best results. This team should include the farm owners, your lawyer, accountant and banker. It is crucial that all these advisers are prepared to work together and listen to your wishes. It is important that the expectations of each child are managed well 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 on the farm it is a good idea to listen to the whole family. You might be surprised who would like the farm retained and who is not concerned. If a particular member of the family is appointed as the successor in terms of farm ownership it is 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 farming and the level of debt that is sustainable. The goal is to ensure success for the next generation.
Legal advice should be sought on what farm ownership structures should be implemented and the obligations you will have to non-farming family members compared to the farming family members. Advice should be sort in regards to the Family Protection Act and the impact of the Property (Relationships) Act. You will need to make sure your wills are up to date regardless of whether or not Trust/s are in place. If trust/s are in place a Memorandum of Wishes setting out the intentions for those trusts is required.
It is is important to appoint an independent person to be in charge of keeping up the momentum so that the plan is put in place, then implemented and then reviewed regularly to ensure it is working.