The question of what is to happen to the family farm is a significant issue facing farming families and is often difficult for families to confront and resolve. It is important to ensure that any plans you may have for succession are actually feasible. The earlier that farming families can put in place a plan that deals with what is to happen with the family farm, the more successful the plan will be.
A successful plan for the family farm will involve the following key components:
- Open and frank family discussions;
- Professional advice;
- Financial security;
- Fairness; and
1) Open and frank family discussions
The first and most important step for farming parents is to have an open and frank discussion with your children as soon as possible about what is to happen to the family farm.
- Explain the need for fairness, not equality.
- Canvass the importance of keeping the farm intact and in the family and see if your children agree.
- Ensure that everybody knows and understands what the plan is so that hurt feelings can be minimised.
2) Professional advice
The next step is to see your lawyer to discuss how you can put in place a plan that meets your family’s needs. Your lawyer should then work closely with your banker and accountant to ensure the plan provides maximum benefit.
3) Financial Security
A succession plan must guarantee the financial security of the farming parents. Any succession plan therefore needs to ensure that the plan is financially viable to both parents and the succeeding child. The best way of ensuring the financial security of the farming parents is put a plan in place as early as possible. This means that the transfer of the farm assets to the succeeding child or children can take place over a period of years.
4) Vesting of Control
Traditionally the passing of control of the family farm has been a gradual process of passing ownership and control over a period of time. A successful farm succession plan should have in place a legal structure which enables the gradual passing of control in accordance with the needs of the farming parents and in consultation with the succeeding child.
Many farming parents struggle with how to achieve equality between all of their children. The reality is that if the family farm is to pass to one child, it will be almost impossible to achieve equality as between the remaining children. Fortunately however the law does not require that there be equality between children. The law does require that you make adequate provision for each of your children. What constitutes adequate provision will depend on the value of your estate and the particular circumstances of each of your children. A farm succession plan should be structured in such a way that all children are treated fairly.
A workable succession plan will allow for the gradual sale of the farm assets to the succeeding child over a period of time. It should also be flexible so that it can work to the family’s advantage in changing economic times.
If you want to discuss how to start planning your family’s succession plan then contact the rural law experts at Gallie Miles.