review structures and documentation.
» The succession plan needs to be built into legal documents and structures as soon as possible.
» Ensure land and the other parts of the business are properly defined.
» Ensure all legal titles are in order.
» Confirm that everything possible has been done legally so the process will be smooth and the succession outcome will be legally secure.
Even when viewed as an ongoing process the handover of a farm can still be compartmentalized.First you have the core farm assets, then you have the core operations of the business, then you have any diversifications such as rental properties, forestry blocks and so on.
Each part will ideally be transferred legally from the control of one generation to the next.Specific legal and accounting advice should be sought about how best to achieve the desired outcome.Being aware of the various legal structures available is a good place to start.How the land and buildings and the business associated with them are owned will make a significant difference when it comes to the succession process.
It is paramount for the succeeding child that once a succession plan is determined it is legally documented and all the required new legal structures put in place as quickly as possible.There is always the risk that parents will die before a slow process is completed and if this happens then all of the work towards succession could be wasted.
Reviewing the current ownership structures of the land and other legal documentation, such as wills, partnership agreements, property titles, leases and trust deeds with an experienced rural lawyer is essential.
Partnerships, limited liability companies and the various types of trusts all have their proponents.Tax implications also need to be taken into account.
One potential solution is to vest ownership of the farm and farming business, including stock, plant and other assets, into a limited liability company; while placing ownership of that company into a family trust.Following such a formula, advocated by rural solicitor Ian Blackman, allows the succeeding child to gradually buy the trust out of its ownership of the company over the decades preceding the parent’s retirement.Thereby building up the cash within the trust of which the parents and other children will be beneficiaries.Upon retirement or death the parents then have the option to gift part or all of the remaining shares in the company to the succeeding child.This approach allows the farming child to partially buy the farm, gives the parents a life interest in and ongoing income from the farm and potentially enables the off-farm children to benefit with some cash earlier than their parent’s death.
While these suggestions may be useful, they do not provide the complete answer.Farms encompass a disparate set of assets.Passing them from one generation to the next is complex, and will be more successfully accomplished with expert assistance, from any or all of the banking, legal, accountancy, and farm advisory professions.