Farm succession planning refers to the orderly transfer (usually over time) of management, responsibility, ownership and control of farming assets from one generation to the next generation.  Any comprehensive Succession Plan will also involve estate planning.

 Estate planning means the planning and arrangement of your assets in an organised manner during your lifetime to ensure that, upon your death, they pass to your intended beneficiaries in accordance with your wishes, with minimum erosion due to taxation or disputes.

 To get started with creating a succession plan there is a handful of considerations that you should take in. These are particularly relevant to primary producers. Due to the complexities that may arise in succession planning, this guide serves to better consolidate your understanding before you see a professional.

The relevant factors are

(1)        Family Trust – Pros & Cons

Family Trusts enable a person to control assets without owning them and can have many advantages and disadvantages. The main advantages come in the form of asset protection and tax advantages whereas the disadvantages are created through the extra administration required and accompanying complexities.

(2)        Begin with the end in mind

It is wise to always consider what the end goal is. This is particularly important when purchasing property or equipment as the details of the exact owner may not be relevant at the moments but can have larger implications with regards to succession planning, specifically, the tax disadvantages that may occur.

(3)        Preliminary Matters

When it comes to succession planning, there are a few items which you should complete as a priority over everything else. These are that you tidy up the balance sheet of the trust, replace any personal trustees with a corporate trustee and finally, ensure all trust documents are valid.

(4)        Deed of Family Arrangement

Deeds of Family Arrangements are often preferred in place of contracts as they require no consideration, a legal requirement for an enforceable contract. Although a Deed of Family Arrangement is not a definitive type of legal document as it varies from case to case, they all achieve the same objective of outlining a Succession Plan arrangement.

(5)        Content of a Deed of Family Arrangement

As a Deed of Family Arrangement is not a definitive type of legal document the contents can vary. Generally, there are a few items that are quite commonly found. The contents may include: Annual payments to parents, protection against the younger generation selling the farm, protecting the older generation from the bank and finally, specific provisions relating to off-farm children.

(6)        When a Deed of Family Arrangement May Not Be Appropriate

Although a Deed of Family Arrangement seems to suit most families, they may not necessarily be the best choice with regards to succession planning. Issues may arise where a Deed of Family Arrangement may trigger capital gains tax or duty provisions if done improperly. In theses circumstances, a Memorandum of Understanding may be more appropriate but caution should be taken as these are not legally enforceable.

 Due to its general nature, this information is not intended to be legal advice.  You should not act without first obtaining advice specific to your circumstances.