Farm Succession Planning: An introduction and helpful guides

This week on Table Talk we are covering the theme of Farm Succession and Transition Planning

The three-part series on succession planning includes:

  1. Farm Succession Planning: An introduction and helpful guides
  2. Do’s and Don’ts: What do the succession planning experts advise?
  3. Learning from Others: Succession Planning Case Studies

Access our Succession Planning Hub in the AgLibrary 


An Introduction to Succession Planning

Succession Planning is explained as “the development of a plan that will allow a smooth transition of the business and any assets with minimal disruption to the business or, importantly, family relationships”(Succession and the family farm – A plan for permanence, Deloitte – Agribusiness Bulletin).

The topic or process of succession planning, when brought up in conversation, can conjure up images and feelings of stressful conversations, family disputes, poor communication, and intense emotions. Why is this? Andrew Beattie of ProAdvice Pty Ltd stated there a number of reasons why a family farming business adds to the already complex nature of succession planning:

  • The emotional nature of family connections and the associated difficulty in having conversations about these difficult subjects.
  • Often only some of the next generation will be involved in the future running of the business and others children are not.
  • There are varying needs and wants of the “retiring” generation as compared to the new farmer(s) and their partners;
  • There is often a long multi-generational family history of the land and business in question.
  • The farm is a large tangible asset with a value that is independent of the operational return of the business. The business return on the asset value is generally low and variable (relative to other investments).

Beattie notes that typically the oldest son took over the family farm or family estate. If it was a possibility, other sons who wished to farm were helped to get established in other farming regions being “opened up” and daughters where left smaller “tokens” of the family wealth. Today, this is changing towards an expectation of equality. Now, Beattie explains, there are two key competing factors at play:

  • Modern estate planning is leading to smaller farms, or farms with heavy debt burdens, via division of assets or sale of the farm because “fair” division is not possible; and
  • The scale required for a viable operation is increasing.

Research by Chapman and Eastway and Charles Sturt University found that the proportion of farms being transferred to a successor is declining. In their 24-page report, they examine the current and changing dynamics of succession planning in Australian farming families and the potential impact these changes will have on regional communities and the broader economy. The study found that:

  • many succession plans fall apart because of the limited understanding of legal and tax implications of transferring land, income and assets
  • significant deviance in ownership preference between generations (younger people prefer more collective models of ownership and older generations prefer sole-proprietor models)
  • younger generations prefer open communication and collective-decision making
  • succession planning is still influenced by a deep-seated, patriarchal ideology
  • young successors are returning to family farm at later age (averaging 27 years) after taking a ‘professional detour’
  • young farmers are increased required, and willing to, seek professional advice
  • many farmers find the options available to fund retirement are limited if they leave planning too late usually because of an under-estimation of the ease of which sufficient funds can be accessed, given tax implications of withdrawing farm income.
  • over half of respondents state they do not expect the distribution of assets to be equal, but fair.
  • primary factor affecting the decision to sell or return to a family farm is financial viability.

What are the key components of Succession Planning?

Succession has been referred to as a three legged stool as there are three equally indispensable parts of the process:

  1. Estate planning – transfer of ownership of family/individual assets.
  2. Retirement planning – transition of labour and management
  3. Business transition/succession planning– transfer of management and/or control of the family farm business (or a part of) to another member(s) of the family.

Geoff Tually in his Farm Succession Guide stated that we must understand the difference between Estate Planning (wealth distribution – inheritance options) and Succession Planning (wealth retention -option or build on what parents have built up).  Tually explains that by separating the land from the farm business and using separate ownership structures creates more options for farm families.

He separates the succession planning process into Family, Ownership and Business.

Family:

  • Farm family goals
  • Family cash needs
  • Family opportunities
  • Wills

Ownership:

  • Selecting an appropriate ownership Structure
  • Ownership strategy

Business:

  • Farm family cash needs and farm business cash flow
  • Changing economic environment
  • Business planning
  • Business plans

In our next post, we outline what succession experts outline as the ‘Do’s and Don’t’s’ of Transition and Succession Planning, but before that, we have found the following to be useful end-to-end guides to assist in understanding the succession process and providing a handy guide through the stages of the journey (please note not all are Australian sources).

Succession Planning Tools and Guides

Succession Online: Proagtive

Succession Online is an online program, the first of its kind, which enables up to 8 family members to work through this program together. The topics that you will be coveredinclude, what succession planning is, family communication strategies, individual goals and working out the purpose of your business. In addition, you will learn how to understand your business figures and farm finance needs along with understanding your family dynamics and intergenerational differences.

It is $770 incl. GST for 8 family members, you can work at your own pace and it can be accessed for up to 365 days.

A Guide to Succession – Sustaining Families and Farms: GRDC

Developing a succession plan that meets the expectations of all involved is not easy and this booklet is a good starting point for people looking to broach the subject of succession planning. This booklet is a sound, factual guide that will provide an important starting point for many families. The inclusion of various professionals’ perspectives provides some wonderful ideas on the succession planning process, with each providing a slightly different take on the subject.

Production Horticulture Farm Succession Planning Toolbox: Bundaberg Fruit and Vegetable Growers – Greg Weir

Good introductory overview to planning process that covers barriers to starting a succession plan, too many children too few assets?, treating family members fairly and equitably, steps to developing a plan and a guide to inheritance.

The Farm Family and Their Family Farm (2016 edition)

Geoff Tually has produced 145 pages of thought-provoking advice. Tually really tells it how it is and his work is based on decades of experience and research. The Guide contains a Workbook that allows a farm family to work through family, ownership and business issues commonly experienced by farm families.

Tually states: “This Guide might seem large, but there are two HUGE assets involved, your family and your family farm.”

Farm Succession Guidebook – California FarmLink

The US-based Guidebook opens with “Congratulations! While far too many farming and ranching families wait until it is too late, you are now embarking on the farm succession planning process. You’re in for a difficult but highly rewarding journey!”

This Guidebook has six chapters that link out to other resources. The complication of resources are organized by key subject areas and there are also worksheets to guide the process.

Farm Ownership and Transition Workshop Resource Book – Beef + Lamb NZ

This is a 48-page resource book compiled by Beef+Lamb NZ is a really fantastic document that is comprehensive and insightful. Complete the family business meeting checklist on Page 6 to see how your family is performing. There is also a family business transition readiness assessment on Page 15 that may be helpful to get you started and an exercise to calculate “sweat for equity”. te

Legacy Workbook – Farm Journal Legacy Project

This is a US-Based workbook designed to help you start navigating the succession planning process. Handy exercises at end of each chapter and some insightful commentary/case studies at the start of each chapter.

Planning the Future of Your Farm – A Workbook Supporting Farm Transfer Decisions: Virginia Cooperative Extension – Robert Andrew Branan, Attorney

The workbook is built from materials first used in an education campaign – begun in 2004 in Virginia and North Carolina – meant to help aging farmers and landowners understand farm succession principles. US-workbook that stresses risk management, protecting relationships and wealth. Over 100 pages and not all relevant to Australia, but a nice guide nonetheless.

View all resources in our Succession Planning section of our Build Library here.


Next in the Succession Planning series:


Disclaimer: We note that there are many farming models at work in Australia and the inter-generational family farming model is just one of them. Although this series concentrates on the family farming model, there are still some important takeaways for all. Stayed tuned for later themes on alternative farming models and pathways into farming.

 

Access our Succession Planning Hub in the AgLibrary