Succession Planning: To Transfer or not to Transfer – When is the right time? (Part 1)
As the saying goes “If you fail to plan, then you plan to fail!” This too applies to succession planning for farmers.
As the average age of a cane farmer is now 70, your retirement plans and succession planning may be (or perhaps should be) already in order.
Though you can be forgiven if this is still on your “to do” list. There is so much to consider and it is very often tricky to navigate all the options before coming up with the succession plan that is right for you.
I’ve had the pleasure of assisting many farming clients with their succession plans over the years and there is definitely no “one size fits all”. Each succession plan is completely different, tailored to those particular families’ needs, wants and desires.
For those of you wanting (or needing) to make a start on your succession plans – here are some of the questions that are important to ask yourself when considering your succession plan.
Who in your family is interested in being involved in the farm?
When do you want to transfer your farm to the next generation?
How do you manage everyone’s expectations?
What do you do with the debt owed on the farm? Will you still be responsible for it (partly or wholly)?
Where will you live? Do you plan on living in your farm house indefinitely?
Do your children want to move onto the farm? If so, can you sub-divide off a house block for them or yourselves?
What if you don’t want to hand it all over at once? Can your succession plan be a gradual thing?
What assets will you leave in your name?
How will you afford to live? Will you be eligible for the pension?
Now, you are definitely not alone when having to come up with answers to the above questions! Your Accountant, Solicitor and Financial Planner can be integral partners with you in creating your own succession plan and can help guide and advise you on the many options available to you.
This topic is very large so I won’t attempt to elaborate on the options available to all of the above questions here and propose to discuss these in more detail in the following issues.
However, let’s make a start!
Who in your family is interested in being involved in the farm?
This may be one of the easier questions to answer as you know your children better than anyone. You’ll already have a pretty good idea about who is wanting to be a farmer and who doesn’t. However, even if you think you have the answer, it is best to talk to each of your children (perhaps separately at first) to confirm your assumptions. Once you’ve spoken to each of them separately, it may then be a good idea to discuss as a family group, confirming your discussions with each of them so each of your children know who else is interested/not interested in being involved in the farm. If you think there may be some issues or tension between the children on this point, it may be best to speak to one or all of your trusted advisors to come up with possible solutions to keep everyone happy (as best you can) and create realistic expectations for each family member.
When do you want to transfer your farm to the next generation?
There are essentially two options for farmers when considering their succession planning:
To leave your farming business to the next generation in your Will. If you chose this option you will continue to run and operate the farming business yourself until you pass, then at that time, it will be transferred to your children as you see fit through your Will; or
To transition the farming business (in whole or part) during your life to your children that want to be involved in the farm where you can continue to offer guidance and continue to be involved in the farming business as much or as little as you wish.
There is no right or wrong answer here. Though, it’s important to consider the advantages and disadvantages to both options before choosing one.
For example:
If you leave your farming business to your children in your Will the advantage here is you keep control of the farm. The main disadvantage to this option is as you get older, you may find it harder to continue to manage the farm by yourself without having outside assistance.
However, if you begin the transition early the advantage to this is your children can take on some of the responsibilities that were once left for you to do while at the same time learning how to manage the farm with your guidance. The main disadvantage to this option is, without careful planning, you may lose control over the business decisions, or you leave your farm at risk of a potential claim if one of your children run into financial difficulty or marital issues.
As set out above, there is no right or wrong answer. Once you are fully informed about the advantages and disadvantages of each option you will be better placed to make an informed decision on which option best suits you and your family’s circumstances.
Next issue we’ll continue to explore Succession Planning further.
The content of this article is intended to provide a general guide to the subject matter and is not legal or financial advice. Specific advice should be obtained in relation to your particular circumstances.