And that’s why it is even more important to plan early and get it right when you are on the land. You are not just dealing with a business, but invariably also with a home.
Some 99 per cent of the 134,000 farms in Australia are family owned with the average age of farmers being 52.i It is believed that farmers are five times more likely than other Australians to be working beyond the age of 65. There are a variety of reasons for this, from a reluctance to relinquish control, to a lack of family willing to take over the reins and financial necessity.
Given the physicality of farming, it would seem to make a lot more sense to start thinking about succession planning well before that stage.
Often such planning is put into the too hard basket because there are so many variables to consider. But this will not solve the problem, so it’s better to get good advice and get it early.
The first thing you need to do is open the doors of communication. Arrange a time to talk with your family to discuss:
- Who wants to inherit and work on the farm and who wants to leave the property
- Whether they agree each child should be treated equally or accept that the one inheriting the farm should receive preferential treatment
- How everybody feels about splitting the property between siblings, or
- The way forward if none of your children wants to stay on the land.
These are all considerations that need to be addressed and revisited over time to ensure they meet with everybody’s wishes.
If just one of the children wants to remain on the property, will they need to find the finance to pay out the other siblings? If so, then the next decision is how that finance will be found.
Perhaps the answer is to transfer the property before you die. If that is the case, then where will you live in retirement and what will be your source of income once you retire? Again, you need to examine the options. Perhaps you may receive an ongoing income from the property, or maybe find income from other investments. Importantly, you also need to revisit these options over time to ensure they still work for you.
One danger of not having a succession plan and working well beyond your best years, is that you can run the farm into the ground and make it a far less attractive property to sell.
Structure your plans
There are so many questions to ask and what is right for one family, may not be right for another.
But once you determine how you want to move forward, you then need to examine the best structures to put in place to make the process as efficient as possible. Some of the key advice you may need is on tax, trusts and land ownership and the intersection of all three.
Tax is particularly important as you want to avoid or at least minimise capital gains tax (CGT).
If you are 55 years of age or more and retiring and have owned your property for at least 15 years, then you may qualify for the small business 15-year CGT exemption on your entire capital gains. Other concessions may apply if you don’t qualify the 15-year exemption.
For couples where the family farm is held in their own name, perhaps you might want to consider a joint tenancy agreement as it leads to automatic transfer of ownership if one dies.
Or you might consider putting the farm into a family trust or perhaps holding it as an asset in your self-managed super fund. There are so many what-ifs to consider when it comes to rural properties. If you want to discuss how to move forward on your estate and succession planning and what will work best for you, then give us a call.