Is your will your farm succession plan?
Unfortunately for many privately-owned farming enterprises, the preparation of their wills is their only attempt to address family succession. According to recent research, only 50% of farming enterprises have started to discuss succession, let alone prepared an effective succession plan.
We all know succession is a complex and emotive issue, often easier to ignore than to address. Yet it is becoming increasingly more of a critical issue for farming enterprises with the record numbers of baby boomers retiring, the growth in farm land values, volatile pay-outs and the rise in the number of relationship breakdowns. The easiest option, i.e. the preparation of a will, becomes the ‘default’ option. The consequences can be heart breaking for families.
There are many barriers to effective farm succession planning including:
- Parents finding it difficult to let go of control
- A changed focus of the ageing parents to asset protection rather than growth
- A lack of planning and implementation of their children’s management and business
- Skills in the changing industry of farming
- Valuation disputes
- Difficulties in organising successor funding free of guarantees
- Family members choosing other careers and therefore a lack of obvious successor
An important initial step for farming families is to assess how prepared you are for succession by considering these questions:
- Are you willing to eventually transfer control of the farm business?
- Have you determined when you will retire from active control of the farm?
- Have you experienced a “succession event”, either positive or negative?
- Do you have any reservations about your potential successor and/or their spouse?
- Do you consider the family successor suitably qualified to manage the farm business?
To protect your family’s future, the future of your farming operation, and have peace of mind, now is the time to start developing your succession plan. Talking to an outside consultant such as your accountant, lawyer, financial planner or bank can really help you to consider all of your options objectively.
If no suitable successor exists within the family there may be alternative ways to pass on the family farm. One option may be to set up a governance board that your family can be members of even if they are not interested in actively taking over management of the farm. Corporate-style farming structures – particularly for dairy farms – are growing in popularity where successors can be brought in as shareholders. This can help farmers who may not have family successors to team up with people who are lacking in equity but have a desire to manage and one day own a farm.
UHY Haines Norton Director Mark Foster is a specialist in Farm Accounting. If you would like to discuss succession planning for farmers or any other aspect of Farm Accounting, please contact Mark at email@example.com or phone (09) 420 7957.