Farm succession planning: How to pass on the farm without family tension

Succession planning can be a taboo topic in the farming sector. We speak with two families who share insights into how they navigated the process.

If there were a list of taboo topics in the farming sector that rattled people to the core, family farm succession would surely top it.

The mention of farm succession has the ability to end conversations, turn family members on their heels and switch perfectly amicable moments into awkward, frustrating, upsetting debacles.

On the flip side, not mentioning it can have a similar festering effect.

The horror stories of legal battles, family breakups and sons or daughters slaving their life away on a promise of inheritance also abound.

It is little wonder that farm succession is thrown in the too-hard basket.

But experts say addressing the elephant in the room as early as possible is key to avoiding the long-term challenges.

PLANNING EARLY IS CRITICAL

Southern NSW farmer Kellie Penfold said farm succession was like ripping off a band aid, and starting early was critical.

“It’s never going to be the most fun thing you ever do but the sooner you start on it, the less painful it is,” she said.

Kellie and her husband, Rohan Bahr, run an 1800ha sheep, wheat and canola enterprise at Henty and embarked on the farm succession path with Rohan’s parents, Neil and Beverley, 20 years ago.

Henty NSW farmers Kellie Penfold and Rohan Bahr.

She said the process was relatively simple for several reasons; her parents-in-law were willing participants, there were no other siblings in the partnership, Rohan was treated generously by his parents and there was open communication.

But Kellie said over the past 30 years she had witnessed successful successions and some that had ended in the High Court, marriage breakdowns and family separations.

“I also know plenty of farmers in their 60s who are still waiting on someone to die to find out how much of the farm they get and how much they need to pay out the rest of family,” she said.

“With land values increasing I think we are going to hear of more issues arising, particularly from siblings who were poorly treated or not acknowledged. Therefore, while it might be painful and there are hard things to talk about, start early and talk often.”

SIBLING RIVALRY

One of the key issues raised by farmers in succession planning was how to fairly provide for both on-farm and off-farm children, Gippsland lawyer Katherine Argentino said.
“The on-farm child has usually made a significant contribution to the farm, working for little income, making improvements, growing the business, and sometimes caring for their elderly parents,” Ms Argentino said. “For these reasons, the on-farm child’s expectations are high.”
However, the Warren Graham and Murphy senior associate said off-farm children expected their fair share.
“It’s a complex balancing act that is difficult for families to navigate; what is fair is not always equal and what is equal is not always fair,” Ms Argentino said.
“The social and emotional aspect of managing these expectations and problem solving to ensure the farm is a well-resourced, viable business and in some circumstances, coming to terms with the prospect that the family farm will be sold when the parents retire is difficult for some families.”
Ms Argentino said succession planning problems could be mitigated by having a formal succession plan.
“There is no ‘one size fits all’ approach; every family and farming business is different,” she said.
“It’s important to plan early. Working through options such as how to compensate off-farm children takes time. Planning that is left too late can result in lost capacity to provide instructions and elder abuse.
“Communication is key. We appreciate that it can be difficult to get everyone around a table but ensuring open and honest communication with all interested parties assists to manage expectations and avoid disputes.

“Review the plan regularly and allow for flexibility. A farm succession plan is a work in progress – the only constant in life is change. Once in place, a plan should be reviewed every three to five years.”

TRUST AND TRANSPARENCY

Lucinda Corrigan, of Rennylea Pastoral Company, Culcairn, NSW, said their family continued to manage an evolving farm succession plan across their grazing business’ two property aggregations totalling 4000ha and running 4000 head.

Four family members are partners in the business; Bryan and Lucinda and two of their three children, Ruth and Anthony. who are now the fifth generation to run the business. Both Ruth and Anthony and their spouses live on the farms. Third sibling Martin is a mining engineer and has no plan to join the family business.

“With some wonderful advisers, we sat down in 2011 and commenced a succession process,” Lucinda said.

“We asked the three children to let us know within five years whether they wished to return to the business, after study and work. Our lawyer initiated that process where each of them wrote to him and expressed their goals for the future.”

Once Ruth and Anthony returned to the farm, Lucinda said the next step was to draw a line in the sand from the date they started working in the business and to make sure Martin’s equity was recognised prior to that date.

Lucinda’s advice was that someone in the business needed to own and shepherd the process to make sure it progressed at the important moments in time.

Lucinda and Bryan Corrigan say communication is key when it comes to farm succession.

“Transparency and communication are the most important principles in the process, making sure there are no cattle yard conversations that lack substance or follow through and are undocumented and insincere,” she said.

“The important values are generosity, inclusivity and trust with each other. We have always included spouses in family meetings.

“The process is not a meeting or finished in a single heartbeat. The transfer of authority and assets requires a shared vision and attention to the purpose. The outcome is very worthwhile.”

MORE THAN MONEY

Kellie agreed that succession plans were about much more than money.

“Everyone assumes the issues are financial, but I think security – for your future, where you live, where do you go home to for Christmas – and acknowledgment ‘you got us to where we are today’, ‘I recognise the concessions others in the family have had to make’ are just as, if not more, important than money,” she said.

Two years ago the Bahr family embarked on the next stage of plans to ensure Neil and Beverley’s needs were met in preparation for aged care.

A deed of entitlement was drawn up outlining Rohan and Kellie’s obligations in ensuring the older generation had choice and flexibility when and if aged care was needed and the deed has been shared with all members of the family and advisers.

“Our three children, who are all at university or working off-farm, have been included in our business and succession planning since they were in their early teens and they are very much aware of where everything is up to and the conversation has already started about our succession plans to their generation,” Kellie said.

NEVER TOO EARLY TO TALK ABOUT SUCCESSION

Commins Hendriks solicitor director Tammy Holzheimer, Wagga Wagga, NSW, has worked with farming families on succession planning for more than 20 years and said the biggest challenge had always been starting the conversation.

“Communications about wishes, intentions and expectations is crucial,” Ms Holzheimer said.

“Starting the conversation and effectively communicating about the future plans for the business is often easier if assistance of professional advisers is obtained for that purpose. It is important that advisers are involved quite early in the conversations to ensure the path chosen is practical and without adverse tax consequences.”

Commins Hendriks solicitor director Tammy Holzheimer, Wagga Wagga, NSW.

Most of the typical succession challenges such as viability, fear of divorce or selling up, fairness, effective communication, and tax concerns, have several options to address them.

“Whilst not all challenges have resolutions, a problem shared is a problem halved and talking about succession issues and challenges with advisers who have experience addressing these issues with other families can help immensely. They can often have some practical suggestions for how to approach issues,” Ms Holzheimer said

The sharp increase in land values has created additional challenges for farm succession.

“It has always been difficult to treat farmers equally with non-farmers however the disparity is now more glaring, especially to non-farmers,” Ms Holzheimer said.

“The increasing land values create more temptation for estate challenges and the increasing size of enterprises mean fewer farmers are able to access small business concessions. For these reasons, I’d consider that undertaking succession planning now is more crucial than ever.”

The cost can vary widely from $2500 to $20,000 depending on who is engaged to assist and the issues and complexities that may arise.

“The costs of succession planning can be expensive however are far exceeded by the costs of not planning properly,” Ms Holzheimer said.

“Frequently, government departments make grants available to assist in the cost of succession planning. These have always been very effective in promoting the importance of good and regular planning and they don’t just remove a barrier to succession planning, but actively encourage families to start the conversation with the help of experienced professionals.”