Farming succession is absolutely imperative to the success of individual farmers, but it is also integral to the overall agricultural picture in the UK. Factors such as falling revenue across the rural sector, increased competition from foreign competitors and the evolving nature of the ‘modern farmer’ all contribute to the importance of planning correctly for the future.
Set out below are our ‘top tips’ for dealing with this often financially and emotionally difficult concept and which we believe best capture the necessary required steps:
Opening Pandora’s box
Initiating discussion with clients who need to consider succession planning can often be fraught with difficulties, particularly if children are involved who have different experiences and aims for the future of the farm. However, by doing so early enough, this will help to bring opinions to the fore and allow those with differing agendas the opportunity to have their say. It may be an idea to consider using an independent moderator to act on behalf of all parties to achieve familial harmony going forwards.
What’s the objective of succession planning?
This is an obvious step to achieve, but can often be lost amongst recriminations between interested parties. Essentially, the main aim may be to preserve the farm for future generations and it is important to keep this concept to mind when beginning the succession plan.
What detail do you include in your succession planning strategy
When considering the detail to be included within any good succession planning strategy, a good starting point is to think about what combination of a number of disciplines needs to be considered – these might range from the involvement of land agents and surveyors, to legal and taxation professionals. It is important to remember that although tax planning is key, the impact of any tax mitigation strategy needs to be balanced against asset protection elements to avoid any issues should the next generation face bankruptcy, divorce or death. In terms of the farm assets themselves, it is vital that the following questions are addressed:
- As each family member is different, what do they want from the farm?
- How are the farm assets currently owned? Partnership, solely or in a corporate structure?
- Who actually lives in or occupies the farm buildings and land?
- What development or overage opportunities exist now or in the future?
- Is the farm already diversified or is this included in the plans for succession?
- Does each family member want to either remain, leave or become involved in the business?
Once the assets have been identified, then you need to establish the involvement of the next generation. This could be by bringing them in as partners or indeed amending or creating a new corporate structure to hold the assets and manage ongoing governance. Succession can facilitate a conversation between the existing and new entrants by considering a staged entry through a variety of alternative arrangements, such as share/contract farming, joint ventures or even paid tenancies. This can allow the retiring farmer the chance to enjoy a managed retirement, rather than just being immediately put out to pasture.
Protect the future with wills and partnership agreements
A key part of succession planning is making sure that the family involved in the business have valid wills and, where appropriate, a partnership (or shareholder) agreement is in place. The importance of these documents cannot be overstated – they allow the ownership of the business to run smoothly even in the event of a life event, such as death. Protection for the future should always be at the forefront of the mind of the advising processionals, as ancillary documents such as Lasting Powers of Attorney, family charters and pre-nuptial agreements.
Conclusion
Due to the evolution of farming over the years and the presence of much more diversification, traditional models of estate planning (such as relying on wills and inheritance on death) have now fallen by the wayside. Planning on death clearly still has a huge role to play, but should be combined with properly advised lifetime gifting strategies. Factoring in protection against divorce, bankruptcy, death, tax and long-term health issues when gifting to younger generations should be considered when discussing any type of lifetime planning strategy.
A well drafted succession plan can save a tremendous amount of familial strife and provide both security and peace of mind to both current and future generations.
