The importance of succession planning

    Claire Braund

    July 2000

    Farming families are recognising the need to plan the transfer of property and assets to the next generation rather than letting death, injury or divorce make the decision for them.

    Fran Rowe, a rural financial counsellor at Tottenham in central NSW, said there has been increased awareness over the past 10 years of the importance of addressing the issue of succession while both parents and children were living. Many families are now seeking professional support for succession planning to help overcome internal communication barriers and fears of conflict.

    Ground-breaking research conducted by the University of Western Sydney (Hawkesbury) in the late 1980s identified that the existence of the family farm was more dependent on the quality of the communication between farm families and their advisers than external factors such as high interest rates, or declining terms of trade (1). Farmers want to be fair to their children and avoid conflict. They are also reluctant to lose control of the family business and are worried about the threat of divorce – the daughter-in-law factor.

    The multi-generational structure of many Australian farms creates potential for conflict between individuals with differing goals and values. It also tends to increase the possibility of sibling conflict and of family disintegration. The major concerns of the second generation families are to be involved in decision making regarding the future of the family farm. They want to know the intentions of their parents and be kept informed of these intentions.

    The process of transferring management and ownership of land is complex and care needs to be taken in respecting relationships. Many common issues can be highlighted, but each situation is different, so what works for one family may not work for another.

    “My belief is that an independent objective facilitator is necessary in most case. Some families think they can run a meeting and control emotions and respect relationships without outside support, but the results are usually disastrous,” Fran said.

    “Accountants and solicitors need to be prepared to explore an integrated team approach to family agreements. An understanding of the family dynamics and needs and aspirations of the each member is crucial to successfully passing on the family farm in a harmonious way.”

    Case Study

    Jill has been married for two years to Jack, the son of a local farmer who has worked with his father on their 3000 acre wheat/sheep property for 20 years.

    Jill wants a family, but is anxious about their future. She and Jack want to farm, but do not have any idea what their inheritance might be. Jack is one of five children and thinks he is a partner in the farm partnership.

    Jack draws a wage from the farm, which he tries to keep to a minimum. Jill works part-time and they rent a house in town. They are saving where possible to buy or build a house.

    The young couple does not have access to the financial returns of the partnership and does not feel as though they can talk about their matter with the accountant, who sees Jack’s father as his client.

    They want to know if they should stay on the farm or consider other options. Should they build a home on the farm or live in a mobile home?

    Jack is now aware of Jill’s concerns, but he doesn’t feel comfortable about broaching the subject with his father in case he is seen as greedy and selfish. He doesn’t want a cause a rift with his father. Jill feels pushy, but wants some sense of direction.

    Progress to date:

    1. Fran suggested Jill use the Lachlan Advisory Group book “Your Farm, Their Future Together” to break the ice. It worked.
    2. Parents called to make an appointment with Jack and Jill. Fran present.
    3. Fran prepared a “Situation Statement” detailing all assets and liabilities with attached schedules of stock and machinery and description and value of land. Analysed farm historical data and established ratios and trends. Collated cash flow for the next two years.
    4. Fran facilitated meeting of parents, siblings and their spouses to hear everyone’s wants and expectations. Determination that the family would look to transfer the management and ownership to Jack and Jill in a way that meets the whole family’s priorities.
    5. Discussed the matter with solicitor and accountant.
    6. Updated the will.
    7. Now looking at options to make the transition. Do parents move off the farm? Can the farm support them living in town? Where will Jack and Jill live? What do siblings inherit?
    8. Working on finer detail.

    Guidelines

    The Bush law Handbook (2), which details a practical guide to law on the land in NSW, has the following recommendations for holding a family meeting about transferring ownership or management of the farm:

    Plan in Advance

    • Circulate relevant financial and legal documents.
    • Arrange a neutral venue, a facilitator, childcare and food and drinks.
    • Specify how much time will be involved.

    Meeting

    • Appoint a chair and someone to keep a record of the meeting.
    • Allow each person to talk about their current and future needs, concerns and dreams.
    • List areas that everyone has agreed on, and ones that reveal a conflict.
    • Analyse the farm’s current position.
    • Hold a group discussion to brainstorm alternatives.

    Decide

    • Do you need more information to make a decision?
    • Can you arrange a trial period and then review it.

    References

    1. F. (1997) The Transfer of Farm Assets and Occupation: Paralysis of Decision-Making. Australian Dispute Resolution Journal November 1997 pp 237-243
    2. T. (1998) Bush Law Handbook, Redfern Legal Centre Publishing, Sydney

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