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.  Succession is like any other plan in that the earlier you start, the more options you will have.  However, it is better to start later than not start at all.

You firstly need to ascertain if anybody wishes to carry on the farming business, as there will not be a succession plan if nobody wishes to continue to farm.  Once you have a successor, there are a number of issues to be considered in a succession plan:

(a) Moral entitlement - discuss the contribution of each generation to the development of the family assets;

(b) Respective needs - identify the needs and wishes of each family member in each generation;

(c) Transfer of control - consider transferring management and control of the farm, usually over time;

(d) Ownership transfer - consider how to transfer ownership of the farm;

(e) Relationship maintenance - manage the process in a way that maintains and repairs relationships between family members repairs; and

(f)  Non-farming children - consider what provision to make for non-farming children.

In implementing a succession plan, consideration needs to be given to the ownership structure of the farm.  The following four legal ownership and trading structures are those most commonly used by farmers and other small business operators:

(a)     Sole Trader: a sole trader is one person trading or owning assets in their name and it is straight forward to establish and operate.  However, there is personal liability for all debts of the business and all income and capital gains are taxed in the hand of the sole trader.

(b)     Partnership: a partnership is an association of two or more persons conducting a business with a view to making a profit.  It is simple to establish and operate.  Again, partners are personally, joint and severally liable for business debts and income and capital gains can only be split between partners in set proportions.

(c)      Company: a company is a separate legal entity to its shareholders.  It is controlled by its shareholders who elect the director or directors who in turn run the company.  It is possible to have a company with one direct and one shareholder.  It offers potential for limited liability protection.  However, there can be taxation disadvantages and management and ownership of the company can readily be divided between a number of people.

(d)     Family Trusts: family or discretionary trusts are referred to as such because the trustee of the trust (which may be a company or one or more individuals) has the discretion to allocate income and capital amongst a wide range of family member beneficiaries.  Family Trust’s offer the ability to split income, including capital gains amongst a wide range of beneficiaries and can provide asset protection in event of the insolvency of a beneficiary.

 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.