Succession planning protects family, Farm and business

By GRDC

Key Points

• As a business, a family farm cannot be simply passed on to the next generation in the same way as a personal estate
• Succession planning should be started as early as possible and reviewed regularly
• The process is just as important as the plan
• Succession planning can provide clarity, certainty and motivation for everyday operations, not just future events
• Succession planning is an essential business process for any family farm.

Many growers see their land as a multi-generational legacy, which they hope to pass into their children’s care when they retire.

As an operating business, however, the farm is subject to legal constraints that control the transfer of its assets and management.

Growers cannot simply ‘pass on’ the farm business in the same way as a personal estate.

Succession planning specialists recommend involving children from an early age, in order to build their willingness and capacity to engage with siblings and parents about objectives for the future.

Link between business and family

Rob Brown from Peppin Consulting in Deniliquin, New South Wales, says succession planning is firstly a process to build transparency, clarity and trust between family members.

“That trust and the process behind it can underpin the successful transition of a family farm’s land, assets and leadership,” he says.

“Most families will need to address wealth decisions sooner or later because of death, ageing issues from retirement to dementia care, or parental financial assistance to get started on or off the farm.

“However, it’s best to address these decisions at an earlier stage.

“An effective succession plan allows the family to plan for future events that will affect their business and their livelihood, in a way that protects the business and – ideally – the family bonds as well.”

Planning to avoid problems

Mr Brown says succession planning should have an everyday presence in the business.

Families that have regular and ongoing family wealth conversations will have a much greater chance of:

• The next generation understanding their parents’ position, living plan, and wishes in the event of death, disability, dementia, or other events.
• The next generation valuing the communication and developing skills based on a constructive attitude to family wealth, including the value of respectful conversations and appreciation.
• Avoiding the negatives of family succession, including apathy, disrespect, entitlement and toxic score-keeping.
• All stakeholders – including parents, children and spouses – being prepared and aligned for navigating future life stages and events, from the unpalatable to the inevitable.

As family dynamics and emotions can run high during stressful life changes, long-term succession planning provides a calm, respectful and informative process for establishing and explaining each family member’s wishes.

“Negotiating succession when it has become an issue is like trying to run an obstacle course in the dark,” Mr Brown says.

People as well as property

Along with property, succession planning is designed to look after the people in the family business, offering them clarity, certainty and incentives.

“Succession decisions and arrangements provide motivation and protection,” Mr Brown says.

The succession plan can provide a range of benefits for family members:

• The parents and next generation will have certainty about their future prospects including career progression, remuneration, the need to grow profits and net worth and future business transitions; as well as their dispute resolution commitments and exit or separation options.
• Members will be able to appreciate the value of their family business arrangements when seen from the perspective of third-party commercial dealings.
• Steps can be taken to preserve the retiring generation’s pension entitlements and protect the next generation from issues like inherited capital gains tax.
• Legal arrangements can be made and explained in a way that encourages communication, discourages stonewalling or reneging, and provides remedies without the need for court action.

The last place to start

“Begin succession planning by engaging a professional for individual discussions, in order to help each family member think about how to contribute to constructive, positive discussions,” Mr Brown says.

“Trained advisers know that throwing family members into a room without preparation and seeing what happens is playing roulette with family dynamics and emotions.”

Mr Brown says that kind of approach can set succession planning back months, years or even permanently.

“Most of us don’t handle hurt well, and hurt and disrespect don’t encourage the communication, trust and generosity that underpin good succession,” he says.

“It is much better to work through individual considerations with each person.

“A specialist will know how to help each person put their goals into perspective from both a family and business standpoint and then help each person determine how they want to bring those perspectives together in a group discussion.”

The earlier, the easier

Mr Brown says time and frequent discussions will help reinforce that the family farm is a business and retiring or taking it over is a business process, not just a family rite.

“By putting a succession plan on a business footing from the start and openly discussing the business’ future year-in and year-out, the processes and values behind succession become part of the business,” he says.

“It ceases to be an emotive issue and simply becomes another operational one.

“That can mean a more assured future for your business and your family.”

Useful resources

• GRDC Fact Sheet - GRDC Succession Planning Fact Sheet
• GRDC GroundCover™ article – Transitioning a viable farm to the next generation
• GRDC Fact Sheet – Transitioning a viable farm to the next generation
• GRDC Farm Business Fact Sheet – Legal aspects of succession
• GRDC Updates paper ‘Farm generational transfer – processes and structures
• GRDC Updates paper ‘Effective management, monitoring and succession processes within a large family farm - a family farm case study’
• A Guide to Succession: Sustaining families and farms
• GRDC Farming the Business Manual Module 3 Section 10: Succession Planning

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