Step One

the parents must develop a family culture where succession is discussed regularly.

Parents should:

» Provide strong leadership toward their desired outcome.

» Regularly initiate family discussion about the future of the farm.

» Explain why succession is important.

» Take time to understand each child’s perspective and motivations.

» Decide exactly who they want involved in the succession process.

» Work hard to maintain lines of communication and align expectations.

» Commit to a completion of succession while they are still alive.

» Avoid surprises for anyone.

The sooner the topic of succession is raised within a family, the better. Although it can be tough to establish family dialogue around succession, the topic should be discussed regularly. It is important to be open within a family about the farm’s future and to create a culture where the expectations of all family members are clearly understood and reconciled wherever possible.

Starting these discussions early in a generation will ease the process and minimise surprises when final decisions are made. Regularly raising the issue of succession around the kitchen table, when family members are together, should ensure everyone develops a greater degree of comfort with the process. If open discussions about succession become a natural part of family life, and these establish clear expectations in everyone’s mind about what the parents intend, much of the drama and tension will be defused.

It is the parents’ role to initiate and lead succession discussions. They need to explain why the family is going through a succession process and make their thinking clear on who should be involved in the process and why. The parents should certainly include all children in the process as far as possible. The parents have the right to decide that some of the children’s spouses or partners have something to contribute to the process, but that others should not be involved in discussions.

Parents must also ensure each child has ahh realistic understanding of the farming business. One impressive example of this was a Southland family who alternately took their son or daughter out of school to attend routine meetings with farm accountants, lawyers and other advisors. After each meeting the child was asked to write a summary of the discussion. This approach developed each child’s business acumen and made the eventual succession smoother and more successful because they both understood the farm.

Later on in the children’s lives, one of the key challenges parents must address is ensuring that the children living away from the farm actually understand the sacrifices of freedom, income and lifestyle that their farming sibling has made to earn the inheritance. It is often the case that off-farm children mistakenly think their brother has had it very easy living in a farm cottage and getting an income. They don’t realise their brother has missed out on many of the opportunities they have enjoyed. They have had the freedom to live where they want and build a career that has often given them more income and greater security than farming really provides. The brother meanwhile has no savings and has gambled his most productive years on parental promises about succession.

It is most important that the succeeding child has total certainty about their future. They need to know that the succession will be economically feasible for them and will not be legally challengeable by siblings after the parent’s death.

When farming parents come to retire and pass on the farm, the ideal outcome is that, after the succession plan is carried out, their children will tell them, “Oh, it was really easy. We knew what you were going to do. We knew Johnny was going to take over the farm. You have told us about it for years and we understand the sacrifices he has made to qualify for this. We were quite happy with that. ”

One simple formal way to ingrain succession into the family culture is by making sure that, if the farm is owned by a trust, when the trust formally meets each year to review its accounts, an agenda line entitled ‘succession plan’ is included at that annual meeting and all adult beneficiaries of the trust are invited to that meeting and provided with the minutes.

Parents need to commit to succession happening and leading it strongly to completion while they are still alive. It is the worst case scenario when parents procrastinate and pass the problems on to others to deal with after their death. This can often happen when farms are placed into trust. Trusts are not a fail-safe option. The memoranda of wishes they come with are generally not legally binding on trustees. There is a real risk that interested trustees can rearrange things after the parent’s death. Independent trustees can also sometimes avoid implementing unpopular parental wishes to avoid legal action from beneficiaries. Failing to plan and complete succession properly during the parent’s lives, is planning to fail.

A farm is a business. A successful business will have a continuity plan. Those involved in the business need to have the relevant conversations to formulate the plan, then execute it. Families that complete this process successfully, while the parents are alive, will become New Zealand’s dominant farming enterprises in the future. Any family that is unsuccessful because it avoids this conversation or does not rise to the challenge of working through the issues related to transition between the generations will eventually exit farming.