commence development of a plan.
» Start with the succession outcome the parents ideally want.
» Determine a realistic outcome that is as close as possible under the circumstances.
» Ensure the bank will support the succeeding child in pursuing the plan.
» Get all parties in agreement on that target outcome.
» Establish the genuine intent and commitment of the succeeding child to the outcome.
» Develop a series of steps to get the family to that achievable outcome.
» Adapt the plan as events disprove any assumptions.
There is a good quote to bear in mind when tackling the development of a succession plan.“The hardest part of leadership is judging how far to stray from what is ideal for the sake of what is necessary.”
It is the decision making team’s job to agree what outcome would be best for the family given the parents’ wishes, financial situation and all the other contributing factors.For every family this will be different.But the plan will likely involve some staged hand-over of operational control to the succeeding child accompanied by the staged purchase and/or gifting of equity in the farm to that same child over a suitable period and in a fashion that secures the parent’s retirement and the other sibling’s interests.
The team then need to draw on their collective experience to develop a timeline of specific actions that will take the family through that plan and deliver them to the desired outcome.
It is critical that the farm’s bankers are involved early in this planning process.There is no point in the family committing to a plan that includes outcomes that the bank will not support.
This plan will likely include some initial changes in the ownership structure of the farm.Possibly to a limited liability company owned by a family trust as respected rural lawyer Ian Blackman advises.It might include the sale of some non-core assets, or the investment in some diversifications to give the non-succeeding children future benefits.Further milestones will be the transfer of the farm cheque book, and the change in reporting structures for farm staff to recognise the new boss.At some point a key milestone might be the parents moving out of the farm house and the succeeding child moving in with his or her family.
That plan might map out actions over two decades, or it might require succession to be completed within 12 months.The timescale will depend on the life stage of the parents and children.
It makes sense for the parent’s equity in the farm not to be entirely gifted to the succeeding child on the day that operational control is passed over.Parents will generally envisage their child keeping the farm and passing it on to their grandchildren, but there is a moral risk that the succeeding child could cash out.The plan should set milestones of farming where the succeeding child earns lumps of equity from the parents after 5 or 10 years of proving their intent to keep the farm and meet the parent’s wishes.
It is very unlikely that the parents or children will get every single thing they want out of the succession plan.Succession, like politics is the art of the possible.Compromise is likely to play a big part in getting the family to a good result.It is the job of the nominated Advisor to manage everyone through that process.