The next generation of famers is stepping up. How can you help your children to enter the industry and take over the reins?
There are some hurdles that farming families face as they tackle the question of farm succession:
- How will the older family members exit the business and still fund their retirement?
- How will you look after non-farming children?
- How will the farming children fund their entry into agriculture?
- How will you protect the farming assets from third party claims?
- Where will you live?
Funding your retirement
If you are planning on retiring and leaving the next generation to look after the family farm, you will need something to live on. Farmers often don’t have superannuation that will support them in retirement. If you do not have enough off-farm assets to fund your retirement, either of the following strategies may be a solution.
Consider leasing your farm to the next generation. Leasing some or all of your property can generate income back to you and allow you to keep control of the farming assets until you no longer need them. The younger farmer can expand their production and gain secure access to land. You must properly document these leases or you risk disputes, confusion about the parties’ rights and responsibilities, or even conflict with the Australian Tax Office!
Another solution is a partial sell down of farm assets to the next generation farmer. This allows you to fund your retirement and to extract some wealth from the farm during your lifetime.
Looking after non-farming children
Besides funding your retirement, there are other benefits associated with a partial sell-down strategy. If the remainder of the farming assets are left to the next generation farmer on your death, a partial sell down will mean there are some non-farming assets available to other family members. This will also have the benefit of reducing family conflict and potential challenges to your estate planning.
Financing a younger farmer’s entry into agriculture
There are a variety of options that allow a younger farmer to finance their entry into agriculture, ranging from loans, vendor finance, instalment payments or earn-in arrangements. These arrangements must be documented to avoid disputes down the track either between you and your children, or among your children.
These financing arrangements should be on commercial terms that allow you to retire but do not cripple the younger farmer financially going forward.
Protecting the farm against third party claims
Third party claims that threaten the family farm can come from within the family. Threats from within the family can come from disgruntled children that have not been properly provided for from the family assets in a Will or from former in-laws who make a claim against the family assets while you are still alive.
Frank discussions with your family about succession planning may address many of these issues before they become a real problem. Estate planning can be implemented well ahead of time so that family members can have some input into decisions and will not be surprised or disappointed by a Will. You may need to do some re-structuring in the way you own your assets (yes, we are talking about trusts) or put in place life insurance as part of the estate planning process.
Protecting the family farm from disgruntled in-laws (i.e. your kid’s partners) can be assisted by the use of binding financial agreements that exclude farm assets from a property settlement, and properly structured testamentary trusts.
Where will you live?
You may wish to remain living on the family farm after you have retired. If you have sold down the farm, or leased it, or given the farm to the next generation farmer (and we don’t recommend this), to protect all the parties, you must put in place a formal agreement setting out what this arrangement consists of, be it a house, the provision of utilities, a vehicle, etc.
These sorts of arrangements may need to take into account your Centrelink pensions or your need for aged care.
How we can help
Passing the legacy of your family’s farm to the next generation can be one of the most satisfying things you can be involved in. But it does come with a number of potential pitfalls. While helping the next generation is great, you also need to think about yourself, and also how you protect this valuable asset from outside claims.
The good news is that there are some tried and true strategies to make this a successful process. Call us on 1300 654 590 to book in a no-obligation chat about how we can help you make this a reality.