Don't make farm succession planning the '˜elephant in the living room'

A basic distinction should be made between Farm Succession Planning and Farm Estate Planning.
Aodh McGrath and Glenn Welby, Welby AssociatesAodh McGrath and Glenn Welby, Welby Associates
Aodh McGrath and Glenn Welby, Welby Associates

One is the process of transferring the management of the business and who will work in the business, and the second is the transfer of the farming assets themselves.

A complicated family history, different ambitions and aspirations can make the process difficult, but for Succession planning to be successful, it must be recognised that all of the individuals involved should be allowed to voice their opinions without fear of reprisal or judgement. These ground rules are best established by using an experienced third party professional to facilitate meetings and help move the process along.

Having dealt with many of the problems a farming life can present during a working lifetime the ultimate challenge to any farming family is to oversee and plan how the business will follow on to a new generation.

Too many farming families act without consulting a professional adviser, making decisions for practical reasons or because that is how it was traditionally done. These actions can have considerable tax, legal and financial implications.

An ongoing examination of wills, trusts, partnership and shareholder arrangements must be made to determine if they are fit for purpose and still relevant. Issues such as the retirement of partners, illness, bankruptcy, mental capacity, and dispute resolution all need to be addressed.

The issue of fairness with regard to those who will not be directly involved in the business is often a difficult one. However, with the use of carefully crafted wills and trusts along with whole of life assurance, we have found that usually all beneficiaries of Succession can be accommodated. The use of discretionary trusts can allow someone to farm for their lifetime as well as protecting the asset for up to 80 years in Northern Ireland.

With farmland that qualifies for 100% Agricultural Property Relief, (APR) from Inheritance Tax, (IHT) there is little encouragement to pass on the assets while the giver is alive, but for those who may consider selling the farm at a later date a discretionary trust should be an option given that then the cash proceeds would remain within the protective structure of a trust - as opposed to being exposed to divorce or bankruptcy and therefore providing effective bloodline security.

Retirement planning is much more flexible than it has been in past and with contract farming, joint ventures, and letting, retiring physically and financially can be done at different times. Pension planning can include investing in the business, land and buildings qualify as investments for Self Invested Pension Plans and Self Administered Pension Plans. These pension plans give up to 40% tax relief on pension investment. Often these arrangements see the farmland rented back to the business allowing for cash to be released from the pension fund and the farmland being transferred into the pension. With new pension legislation, it may be possible to pass farmland on to the next generation via a pension rather than directly.

As well as considering how to provide retirement income and housing without burdening the farm business, it is worth considering how to address the attack from long-term care costs. With clever and careful planning, these issues may be mitigated.

OUR FIVE TOP TIPS FOR SUCCESSION PLANNING

1) Aim for the outcome where the succession plan is a mutual compromise and benefit for each family member and you.

2) Listen to all family members and understand their needs and desires and create an atmosphere of problem-solving and make sure your views are known.

3) Use professional support with people who have the knowledge and experience, and who will provide advice on the options that might be best for you.

4) Take ownership and accountability for your actions, thoughts and emotions. Don’t make the excuse that planning is too hard, or you don’t know how or because of the fear of family conflict.

5) Start now. Ask the questions and get the answer.

Aodh and Glenn have a wealth of experience advising the farming community. To talk about this article or any of the previous articles please call Welby Associates Estate Planning Solutions on 028 92 622910

There will be no charge for your first appointment.

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