Succession Planning

Getting the right help with succession planning – there’s a lot at stake!

We’ve all heard the war stories about farm succession planning gone wrong! Farms being sold, family members who rarely speak, children denied those all-important relationships with grandparents or cousins, family members missing in action from the traditional Christmas and Easter get togethers, and the list goes on…

However, it doesn’t have to be that way and it’s possible to manage the succession process well!

Succussion is a balancing act that requires open mindedness, planning and communication to allow the successful transition of the farm business and farm assets from the older generation to the younger generation with minimal disruption to family relationships and the ongoing viability of the business. Succession planning is about coming to an agreement about how the older generation will meet their needs into the future, including their desire for purpose and security, balanced against the needs of the business and the younger generations dreams and aspirations.

So, who do you speak to?

The solution for many farming families is to engage a professional to help with appropriate communication and planning for succession.

An independent person such as a Rural Financial Counsellor (RFC) can have those all-important initial discussions to educate you about succession planning so that you understand what is involved, how to navigate the process and which professionals to engage to help you with your succession plan. Whilst they can’t facilitate the succession planning process for you from start to end, they can help you to manage the process. Rural Financial Counsellors can also be involved in reviewing the past performance of the enterprise, building financial skill sets in the family and road testing options through cash flows and enterprise budgets.

Depending on the complexity of your family situation, you may want to engage a specialist succession planning facilitator to help you. You will also need to engage a range of other professionals to deal with your succession plan as specialist advice is required and no one person is qualified or licensed to assist with all the advice you will need.

Some succession planning professionals focus predominantly on the legal, financial and taxation implications of succession for the on-farm family members only with less emphasis on managing those all-important family relationships. Other facilitators will focus heavily on the communication and relationships, including those with the in-laws, guiding the entire family through a process to arrive at a family generated solution but leaving the more technical legal, financial and taxation implications to other qualified professionals.

Families engage specialist succession planning facilitators to help guide them through succession planning and provide a safe environment for each family member to voice their expectations and concerns. It’s important to find the right facilitator for your family and one who is experienced in this complex area. Your facilitator really needs a combination of skills and knowledge spanning technical, strategic and more importantly great listening and communication skills as succession planning discussions can often trigger emotional reactions and your facilitator needs to be able to respond appropriately. A good facilitator should be comfortable dealing with conflict and the family’s discomfort with difficult conversations.

The facilitator’s role is to help all family members communicate appropriately and to challenge their thinking with the aim of working through the issues and finding solutions. They effectively hold up a mirror to the family and appropriately manage the rolling of eyes (!) and any careless or insensitive comments that are often made along the way. For some families this may be the first time that inappropriate communication or unacceptable behavior has ever been challenged and that can trigger emotional reactions too.

Long term issues can surface when you put family members around a table to discuss succession. These issues can include long-held attitudes to succession, family history and experiences of succession, a family’s ability to communicate effectively and not sweep the tricky conversations under the carpet, power struggles and a competitive environment with children or other family members, issues around sibling rivalry and unfair treatment, self-esteem, and mental health issues.

When working with a succession planning facilitator the first step in the process is generally for all family members to complete a detailed questionnaire. This is followed by a series of individual family meetings conducted online or in person and a business viability report is prepared. Everyone then comes together for a one- or two-day family meeting to learn about communication and succession, answer a series of questions and listen to each other, review the viability of the business and brainstorm ideas and solutions for a workable succession plan. At the end of the process the facilitator prepares an in-principle agreement and action plan based on the opportunities and solutions that the family has identified.

The next step is to obtain specialist advice in relation to the agreement. It’s important that the various professionals you engage are licensed, experienced, and appropriately qualified to provide advice in the following areas:

  • Legal – business structures, risk management and asset protection strategies, ownership options, legal contracts, Buy Sell agreements, Binding Financial Agreements, Deeds of Family Agreement etc
  • Estate planning – wills, Testamentary Trusts, Enduring Powers of Attorney, Enduring Guardianships, Guardian nominations
  • Taxation – management accounting advice, tax minimization, Capital Gains Tax and eligibility for the CGT small business concessions, pros, and cons of transferring an asset in lifetime versus transferring on death, Stamp duty and intergenerational rules, Land tax rules, tax implications of new business structures and dissolving old partnerships/Companies etc, recommended ownership structures
  • Financial Planning and Retirement Planning – investment advice, superannuation and SMSF advice, strategic planning, tax minimization, Centrelink strategies, age care strategies etc
  • Insurance – life and Disability insurance, buy sell agreements, general insurance
  • Farm Consultants – production advice, agronomy, and livestock advice
  • Personal counselling – may also be required for some family members.

Remember that each professional will come with their specialist hat on and will view the family’s succession plan from their own perspective. They may not necessarily agree with the plan, but they need to be respectful of the fact that the plan was created by the family to suit their unique needs. A fundamental blockage for families often comes when other professionals place their own beliefs ahead of the needs and wants of the family. It’s important that all professionals respect the family’s solution and work as a team with them rather than criticising or diminishing the process that the family has been though. There is no one size fits all approach to succession planning as each family’s situation is unique.

Interestingly when the succession planning process fails, some families look to blame anyone but themselves and some will blame the facilitator or their professional advisers rather than accepting responsibility for their own communication and behavior. Communication is sometimes poor in families which leads to potential conflict that may be either passive, such as withdrawing access to grandchildren, or aggressive and abusive with disrespectful language and behavior.

Getting a succession plan in place takes significant time and effort and a need to balance competing interests. The key element for successful succession planning is a functional family with respectful relationships and good communication skills, but if you don’t have these don’t be put off. It’s important to build your team (your family and your advisers) and the resources you need to achieve the end game… With rapidly appreciating property values it’s going to get even more challenging to achieve this aim into the future.

Start the process early, make sure expectations are realistic, consider all parties fairly – including parents, farming children, non-farming children and in-laws, treat everyone respectfully and approach the process with appreciation rather than entitlement.

The Rural Financial Counselling Service Program is funded by the Australian Government and the New South Wales Government and is administered by the Department of Agriculture, Fisheries and Forestry