A lot of hard work goes into successfully running a farm. Typically, farms are a complex combination of valuable assets including land, equipment, commercial relationships and highly specialised knowledge, accumulated carefully and strategically over many years and across several generations.
Additionally, farming businesses are often structured through partnerships, trusts, and superannuation funds to suit the needs of the families or companies that run them.
Farms are unique businesses and careful planning for business succession can reduce the risk of losing it all to tax or litigation when it is time to sell, retire or hand over to the next generation. It can also help manage family expectations and ensure that you are looked after in retirement.
These articles focus on Wills and estate planning for farmers – which is an important part of succession planning. Succession planning ensures wealth is passed to the next generation – during life or after death.
There are three key reasons why farming businesses need to consider estate planning.
Firstly, farms are often made up of assets like real estate which cannot (or should not) be easily divided. A simple Will (or relying on the laws of intestacy) to divide all assets between family members might force a fire sale of the farm, break up the farm into smaller parcels which are less valuable, or require a family member to buy out others at a time when they cannot afford it.
Secondly, farms are often owned by way of trusts (including self managed super funds (SMSFs)). Assets owned by trusts are not covered by a basic Will.
Thirdly, without proper communication amongst family members, a mismatch between expectation and reality might occur – for example, where a family member might be expecting to inherit the farm after working on the farm for free or for below market salary. ‘Equal’ is not the same as ‘fair’. Anticipating problems early is always the best approach.
What is involved in an ‘estate plan’? An estate plan sets out how ownership and control of assets is transferred to your beneficiaries after death. Each one is different depending on your circumstances and can be as simple or as complex as you like.
Typically, an estate plan would consist of a Will, Powers of Attorney, and Death Benefit Nominations (for superannuation benefits), and might also involve Deeds of Succession of Trustee or Appointor, amendments to existing Trust Deeds or Partnership documents, and a Memorandum of Wishes (which brings the various parts of the estate plan together).
Where do I start? There’s really four things you need to think about – what do you own, what do you control, who do you want to leave things to, and how should they receive it.
In the next article – Getting started, and what’s in the toolkit.
Trent McGregor is a Wills and Estates lawyer with Robertson Hyetts in Bendigo, who specialises in farm and business succession planning. To make an appointment with Trent to discuss your estate planning needs, please call 03 5434 6666.