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SUCCESSION GUIDE
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History, changing expectations and the legal rights of parents

In previous generations farm succession was very predictable.Society was accustomed to seeing farms passed down through generations of one family in a manner that was not common to other types of inheritanceTypically the eldest son would take over the farmThe other children received an education and the daughters were given Mum’s jewelleryThat was a formula that everyone in the farming community understood and acceptedIt was also generally accepted by the legal and accountancy professions.Over time, however societal expectations, driven by pursuit of equality, have diverged from those traditional rural practicesOld fashioned family farm succession is becoming less socially acceptable.

Society now expects families to address succession in a much more proactive and equitable mannerThe common expectation today is that succession should be “fair”Tension arises in many families from differences in defining what “fair” meansFor many people, particularly those from non-farming backgrounds, ‘fair’ literally means ‘equal distribution’ of assets between all children.But to farmers ‘fair’ often does not mean ‘equal’ distribution because that definition may not allow for pursuit of the owner’s wish to keep the farm in the familyTo many farmers ‘fair’ can actually mean a very unequal distribution that does the best possible for all children while giving more assets to one child in order to keep the farm in the family.

Many New Zealanders incorrectly believe that in this country children have a legal right to equality of inheritanceAs the judge explained in the recent farm succession case of Rippey v Hunt, this is not trueThere is no guaranteed right of inheritance for any member of a person’s family, and no presumption that all children must be treated equallyParents are only obligated to make “adequate provision” for any child who needs supportIn other words, a child who is not fully capable of adequately providing for him or herself will need providing for to the extent that the parents are able to do soDue to the economic realities of the farming sector, and the common desire of many parents to keep a financially viable farm within the family, it is not legally required, and often not possible, to treat all members of the family ‘equally’ when farm succession plans are formulatedBeing ‘fair’ in the more traditional sense that most farmers would understand can be a realistic goal.

This principle of fairness should be applied first to the parentsThey own the farm and if they wish that farm to succeed as an economic unit to a child, then their wishes must be addressed through the succession processIn this case both the farm and the parents should be in good financial shape for the future once the transition is completeMaking sure that the retiring couple will have sufficient assets and income to maintain a reasonable lifestyle for the rest of their lives needs to be uppermost in every family member’s mind.The process must also be fair to the succeeding child (the child taking on the farm)The succession plan must ensure that the farm they take on is operationally and economically viable and their ownership situation must be legally secure once the parents have passed awayFinally the process must seek to provide as much benefit as possible to the non-succeeding children. This might mean drawing equity from the farm earlier in family life to help non succeeding children gain further education, develop careers or build businesses off the farm.