From Paddock to Portfolio

How to Transition the Family Farm Without Breaking the Family.

Australia's farming families have witnessed unprecedented growth in land values over recent years. With land prices soaring, even modest operations are now valued at over $10 million.

While this increase in asset value is beneficial, it presents complex challenges, particularly in succession planning. The primary concern isn't just about growing wealth, but also about protecting it during the transition to the next generation.

The Challenges of Farm Succession

Succession planning in farming is fraught with emotional and financial complexities. Common pitfalls include:

• Assuming all children want to be involved in farming: Not every child may wish to continue the farming legacy, leading to potential disputes.

• Gifting assets prematurely or without proper protection: Transferring assets without a structured plan can expose them to risks, such as divorce settlements or creditor claims.

• Prioritising equality over equity: Dividing assets equally among children, regardless of their involvement in the farm, can jeopardise the farm's viability.

  
  

Case Study: The Barlett Family

Peter and Jan Barlett managed a 3,000-acre sheep operation valued at $14 million. Their eldest son, Tom, was actively involved in the farm, while their two daughters pursued careers in Canberra. Lacking a formal succession plan, Peter's will divided the land equally among the three children. Consequently, Tom had to mortgage the entire property to buy out his sisters' shares. A subsequent drought led to financial strain, resulting in the loss of the farm to the bank.

Strategic Solutions for Effective Succession

To avoid such outcomes, consider implementing the following strategies:

• Establish a Family Protection Trust: This legal structure holds the farm assets, ensuring they remain within the family and are protected from external claims.

• Create a Buy-Sell Agreement: This agreement outlines the terms under which a family member can buy out another family member's share, providing clarity and preventing disputes.

• Set Up Testamentary Trusts: These trusts, which are activated upon death, allow for the controlled distribution of assets to non-farming children, offering tax benefits and asset protection.

  
  

Legal Considerations

• Capital Gains Tax (CGT) Rollover Relief: Under Subdivision 122-A of the Income Tax Assessment Act 1997, certain asset transfers can defer CGT liabilities.

• Stamp Duty Exemptions: Some states offer exemptions or concessions on stamp duty for intergenerational farm transfers.

• Superannuation Compliance: Ensure any superannuation strategies align with the Superannuation Industry (Supervision) Act 1993 to maintain compliance.

Checklist for Farm Succession Planning

• Have you identified which family members wish to continue farming?

• Is there a clear plan for transferring ownership and management?

• Are there legal structures in place to protect the farm assets?

• Have you considered the tax implications of asset transfers?

• Is there open communication among family members regarding succession plans?

  
  

Conclusion

Effective succession planning is crucial to preserving the family farm and ensuring a smooth transition to the next generation. By proactively addressing potential challenges and implementing strategic legal structures, you can safeguard your family's legacy and maintain the farm's viability.

If you would like assistance in developing a comprehensive succession plan tailored to your family's needs, please get in touch.

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Nijo Antony

Director