How to pass on the fam­ily farm

Han­dling suc­ces­sion is­sues

Matamata Chronicle - - Rural Delivery -

Gone are the days when the farm is sim­ply trans­ferred to the el­dest son. Fair­ness to all chil­dren is now an im­por­tant ob­jec­tive for most par­ents and nec­es­sary to avoid the pos­si­bil­ity of le­gal dis­putes.

Par­ents need on­go­ing fi­nan­cial se­cu­rity; the suc­ceed­ing chil­dren need cer­tainty of a flex­i­ble and re­silient suc­ces­sion plan.

The non-suc­ceed­ing chil­dren need the as­sur­ance that their in­her­i­tance will be pro­tected.

Ini­tially dis­cuss with your spouse and de­cide what you want out of life and then work closely with those in­volved.

Have clear open com­mu­ni­ca­tion – start th­ese dis­cus­sions early and doc­u­ment meet­ings.

Ev­ery adult should have an up-to-date will but a will is very in­flex­i­ble and not ad­e­quate on its own as a suc­ces­sion plan.

One way to man­age your as­sets is through a fam­ily trust.

Trusts pro­vide the foun­da­tion and mech­a­nism for a good suc­ces­sion plan.

To add value to the trust a mem­o­ran­dum of wishes is rec­om­mended.

Con­sid­er­a­tion could also be given to a com­pany struc­ture as the le­gal en­tity to op­er­ate your farm.

The com­pany could own all farm­ing as­sets in­clud­ing land, this may or may not in­clude live­stock;

The trust could own shares in the com­pany; and

Shares in the farm can be sold to the suc­ceed­ing chil­dren over a greater pe­riod of time.

The above ap­proaches do pro­vide mech­a­nisms to trans­fer own­er­ship but the shift, if very grad­ual, will not give the suc­ceed­ing child emo­tional own­er­ship.

Pro­vide lim­ited accountability and con­trol.

There­fore, in ad­di­tion to the above, thought could be given to sell­ing live­stock, as an ex­am­ple, to the suc­ceed­ing child, cre­at­ing a 50/50 ar­range­ment.

This strat­egy has two main ben­e­fits:

They ac­tu­ally ob­tain own­er­ship and con­trol of the live­stock; and farm­ing de­ci­sions.

This method gen­er­ates in­come for the chil­dren, al­low­ing them to buy more shares in the farm over time.

Other op­tions to gen­er­ate in­come for the suc­ceed­ing chil­dren would in­clude leas­ing land to them, or as­sist­ing them with a 50/50 ar­range­ment on a dif­fer­ent farm.

Many suc­ces­sion plans will have tax im­pli­ca­tions.

You should en­sure that you use any tax losses, con­trol ex­po­sure to mar­ginal tax rates, en­sure de­pre­ci­a­tion re­cov­ery is­sues are han­dled cor­rectly and en­sure all debt is tax de­ductible where pos­si­ble.

To pro­tect the fam­ily, and the farm, the par­ents should:

Form a com­pany/trust struc­ture – the struc­ture could al­low for an op­tion for all in­come to be passed to the sur­viv­ing spouse if there was a death of a spouse.

Re­tain own­er­ship of more than 50 per cent of the farm un­til they pass the reins over to the next gen­er­a­tion.

Pass on the suc­ceed­ing child’s in­her­i­tance to a sep­a­rate in­her­i­tance trust and re­tain con­trol or if the suc­ceed­ing child is in a re­la­tion­ship en­sure re­la­tion­ship prop­erty is ring fenced.

No one ad­viser is likely to have a com­pre­hen­sive so­lu­tion; you need help from an ac­coun­tant, a lawyer and a banker and maybe even a fa­cil­i­ta­tor.

Keep all im­me­di­ate fam­ily mem­bers in­volved.

Peter Hex­ter

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