The Challenge Facing Farm Owners
The complexity of farm succession planning extends beyond mere financial transactions. For farm owners, navigating the transition of a generational asset such as a farm is both an economic and emotional endeavour. The process often grapples with uneven asset distribution, potentially leading to family strife if not managed well.
Addressing Inequality in Asset Distribution A typical farm usually constitutes the lion’s share of a farming family’s assets. However, the farm’s income is often adequate to sustain just one family. Consequently, when the time comes to hand down the farm, usually one child becomes the inheritor. This poses multiple problems:
- Inequality in Inheritance: A single child ends up inheriting a substantial portion, if not all, of the estate, leaving other siblings potentially aggrieved. While the natural inclination for parents is to distribute assets equitably among all children, dividing a working farm is often impractical.
- Legal Disputes & Contested Estates: Siblings who feel left out may resort to legal avenues, leading to estate contests that might result in the division of the farm—precisely what parents aim to avoid. Such situations are emotionally and financially taxing, culminating in strained familial relations.
Strategies for Advance Planning
- Cultivating Off-Farm Assets: One way to address this imbalance is by accumulating assets unrelated to the farm, which can be bequeathed to the non-farming children. Investments and superannuation funds are good vehicles for this purpose, offering tax benefits and ensuring a financially secure retirement for the parents.
- Early and Collaborative Planning: A well-thought-out succession plan requires the input of multiple experts: an accountant, financial planner, solicitor, and possibly a bank or commercial finance broker. Early planning allows for structural implementations that ensure all family members are in agreement, facilitating a seamless transition.
Preparing for Unforeseen Circumstances Life is unpredictable, and the untimely demise of a parent can throw succession plans into disarray. Here, life insurance can serve as a financial cushion, providing immediate liquidity to manage an unplanned succession.
Retirement Concerns for Parents What sustains the parents after they step back? Ideally, they would live on the off-farm assets accumulated over the years. However, the reality is often a mix of income streams such as leasing arrangements and continued payments from the farm. This is not always convenient for the next generation, who may prefer to invest in the farm rather than pay their retired parents. Moreover, assuming ownership may require the new generation to shoulder existing debts and potentially accrue new ones to buy out their parents.
Conclusion Farm succession planning is more than just a financial transaction; it is an emotional and familial journey that requires collective decision-making. Initiating the process early and involving all family members can alleviate potential pitfalls. A balanced approach can help in navigating the complexities and ensuring the farm remains a generational asset, while still taking into account the needs and feelings of every family member.
If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.
This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.