Succession planning refers to the orderly transfer of management, responsibility, ownership and control of a farm business over time. You must be aware that in some cases the best succession plan for a family may be to sell the farm. Each family has different needs.
The following need to be dealt with: ·identifying the needs and aspirations of each family member in each generation; ·building and maintaining relationships between family members; ·transferring management and control of the family farm; ·transferring farm ownership; ·leaving a viable farm for the children to inherit – if that is what you want to do; ·preparing for retirement.
To achieve successful succession, one needs to understand how the forces of annual production and taxation, family, industry, market volatility, climate and politics come together.
The people involved need to agree on a pathway to: ·Establish parent’s broad direction ·Collect information ·Present options for the family ·Provide agreement on broad direction ·Ensure open and honest discussion from each family member ·Provide for continual reviews over time. ·Understand desired direction of all family members ·Tidy up the plan ·Review and road test the plan ·Arrange further family meetings ·Check facts and issues–monitor and update
Selecting a structure or structures: Many people become confused when accountants, lawyers and financial planners talk about an investment "structure" - and rightly so, for the differences between them, and the different factors that need to be taken into account, are many and varied. Generally businesses are conducted through one of four trading entities:
1. Sole Trader 2. Partnership 3. Company 4. Trust – or some combination of the above
Whilst the permutations are endless, selecting the right "structure" for the right transaction, business or investment generally involves consideration of the following:
·the number of people involved ·whether there may be a change to the people involved ·what assets will be owned ·what assets are to be sheltered from risk ·how is the entity's income taxed and distributed ·what are the set up and running costs ·how is the transaction, business or investment to be financed ·how long will the transaction, business or investment last ·will there be employees ·what will be the type of business or investment and what are the particular risks ·what are the participant's goals - short, medium and long term (including estate or succession plans) ·is the structure understood, and is there the discipline to run it properly.
A successful succession plan is the result of open and honest communication by all members of the family.
Most families need outside help to plan and communicate well. Families can identify critical trigger points that will indicate when a family meeting should be called to discuss succession needs.
Among the risks of not talking about succession are a lack of understanding and feelings of insecurity about the future, disharmony in the family and the risk of family breakdown, and concerns about selling assets. Separating land ownership from business ownership can be a successful starting point for succession. It is never too soon to start!
MS&A acknowledges “Options for Change” RIRDC and BJT Legal.
Along with your solicitor and accountant MS&A can help you to: · identify the needs and aspirations of each family member in each generation · build, develop and maintain relationships between family members · transfer management and control of the family farm · transfer farm ownership · leave a viable farm for your children to inherit – if that is what you want to do · prepare for retirement
Last updated: [
] by Mike Stephens & Associates Pty Ltd
