Successful Succession

One of the most difficult things to deal with on farm is the issue of succession. Whilst in the past there was an assumption that one of your children would take over the business from you, this now is less common and is complicated by various factors.

1. The high capital value of land
2. Provision for children who are not involved in the farm.
3. Future viability of the farm.
4. No successors who wish to actively farm the land or take on the tenancy.
5. Lifestyle choices of the next generation.

For previous generations, the profitability of farms was in general higher compared to the capital value of land. This meant two things, firstly that farms were able to generate profits that allowed non farming siblings to be catered for or allowed the purchase of extra land and indeed farms for farming siblings. The relative increase in land and property values has made this a more difficult proposition.

The fundamental thing to consider is that you can be fair without being equitable. For a successor that has stayed on the farm and probably foregone income and potentially some lifestyle benefits this should be factored in.

It may be that the creation of a tenancy for the farming child and trust from which all the other siblings can benefit is one route. It may be that the farm is capable of taking on some borrowing to provide a capital pay out for other parties.

Without doubt the most trouble free successions are where this issue is dealt with early and everyone is aware of exactly where they stand and can plan accordingly. There will be some difficult conversations to be had, however this is a far better route than the potential for fallout and even legal battles after your demise.

At all costs try and resist any temptation to control the future management of the farm from beyond the grave. Determining succession procedures for your grandchildren has many pitfalls and needs to be thought about very cautiously. In these uncertain times it is pretty much impossible to guess what will happen next month so placing constraints on future generations would not be wise.

How viable is the farm? If it is highly reliant on family labour to make a cash surplus or does not make a cash surplus, it may be best to act before you pass the assets on. If you plan on passing on farming assets to children who are not farmers, you have several choices.

  1. Involve a contract farmer who can farm the land and generate a sensible income for your successors; this may involve some capital investment from you to ensure it has a sensible lifespan and good returns.
  2. Make it clear that whoever takes the farm over assuming it is owned can do whatever they like with the asset and they are not at all bound to run the business in the way that you did and this includes disposal of the farm or diversification. I have seen this done in a letter accompanying the will when the client felt he was unable to discuss it.

One of the reasons that clients are wary of dealing with succession is that they are uncertain whether the person or persons most likely to take over the business (and often those who are most interested in taking over) are as committed as hoped for.

There has been a massive change in what the generations born post 1970’s expect from life. Prior to this most farming families were committed to a 24/7 culture of farming with limited holidays and modest private drawings. This was also reflected in the amount of time the main farmers spent with their growing children.

This has changed and quite rightly the next generation expect more time off and a greater involvement with their children. Many have been tertiary educated and have a much wider social circle than their parents and will not accept being tied to the farm in the same way. This should not be regarded as a lack of commitment but as a positive move in terms of quality of life and it also places the onus upon them to shape the business in a way that facilitates this. However, to do this they must have a free rein to do things differently. The future is working smarter not harder and maximising the return from your assets and this will require a different approach on a hill farm to a farm bordering a conurbation.

Do not let “the tax tail wag the dog”! Sometimes the most tax efficient is the not the best way to ensure the family does not fall out after your death. Take advice from a good agricultural accountant and also a solicitor that work well together. Up to date watertight wills avoid family disputes and ensure that it reflects what you are trying to achieve. Early discussion of this with all involved parties is the best way to ensure that everybody gets along after your demise.

Us, as agricultural consultants, are in the unique position of having an understanding of what is possible physically with the farming enterprise and are often the initiator and facilitation of the succession planning process over a period of time. For further information or advice, please contact James at jamesshenton@fcgagric.com or your local FCG Office.

Posted in Business Management, Wessex.