What Happens to the Farm Once You're Gone?
April 19, 2023
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You love your farm but what happens when you decide to retire or you pass away? Which simply raises the question:
“Once you’re gone, what happens to your farm?”
The fact that you are here, reading, might mean you’ve asked yourself the same question, so in order to make the answer a little easier, we are going to have a look at how you can create a proper succession plan.
The Imbalance of Inheritance
Before we get to the practical side of succession planning, an explanation on the best mindset to have when approaching this delicate subject becomes necessary.
In what so many call “the good ol’ days”, a common theme for succession was that when a landowner died his property would pass on to the closest male relative of the family, inevitably excluding women from any land inheritance.
So, what exactly happened, for example, if the landowner had left a brother, a wife, and daughter?
The ownership of the estate would pass on to the brother, and the deceased’s wife and daughter would be left to fend for themselves, which created a problem. One that we are unfortunately still seeing some of the side effects to this day.
Our friends at CWA
realised this problem some time ago and created accommodation for some of these displaced women. But that isn’t a long term solution and probably not one you want for your loved ones.
There are still many family businesses that haven’t addressed this issue and hopefully this article jogs you to acknowledge and take action on planning for a future that you may or may not be part of but are most likely to be able to influence.
The Danger of An Unfairly Written Will
As you can imagine, the practice adopted in the “the good ol’ days” led to a great deal of injustice, after all, farms are more than just land, they are also businesses, and having only the closest male relative inherit all the farm assets often created an uneven distribution of the deceased assets between the men and women in the family.
One of the ways in which society has addressed this inequity was to introduce the Family Provision Act 1972 (FPA), which gave women (and other family members generally), a right to contest an unequal distribution where they felt that they were treated unfairly by their deceased parent (or partner or grandparent).
However, the relevant test under the FPA does not hinge on someone’s subjective view of what is fair or unfair. The test is whether the deceased made “adequate provision from his/her estate for the proper maintenance, support, education or advancement in life” of the person contesting the distribution. As you will no doubt suspect, the meaning and interpretation of this phrase has itself led to many disputes.
The obvious danger is that the test is not necessarily straight forward and lends itself to further dispute and legal complication.
That is to say: A failed Succession Plan can easily lead to the destruction of family ties where siblings sue each other for property and fight over the property left by their parents or partner.
Before You’re Gone
In order to address the potential inequities and legal complications that can arise from not having a succession plan, or not having a properly balanced succession plan, it is important to recognise that the “farm” is not just a square of land, but is also a business, with all the different assets and complications that that come with running a business.
Farm businesses are often set up with different entities separately owning the land, the machinery and stock, and also quite often a completely separate entity operates the “business”.
So, to provide balance and to try to avoid possible conflicts that may arise with your departure, a common and efficient solution is to deal with your assets whilst you are still alive.
There are some advantages to this, one being that as you are still around, you can act as a mediator between your spouse and or children, and you have the ability to talk to them to try and manage expectations over wants and needs, before you depart.
In preparing any succession plan it is important to remember that everyone is different and will not necessarily have the same expectations on inheritance. This highlights a benefit of being able to discuss your proposed succession plan with your children whilst you still can. This can assist in structuring the distribution of your assets among your children.
Shared Ownership and Inheritance
Here’s another pickle for you:
Let’s say there are three brothers that inherited a farm together and have been working it for thirty-five years, now one of them is looking to retire and pass down his share to his descendants.
How can the farms assets be correctly passed down the succession line without creating complete chaos?
There may be a multitude of ways to achieve this, each dependent on the current structures of ownership and control of the farms, the business and assets and other imposts, such as taxation and duty costs. Attempting to find a low cost way to achieve the desired outcome can sometimes be a complex problem and solutions may require some expense and some time to implement.
Where trusts are involved, complications can arise due to the breadth of the pool of beneficiaries, who the appointors and guardians are, who controls the trustee if it is a company and tax and duty implications if property is to be moved out of the trust to another entity.
These issues are a reminder that when setting up the farm and its business, to do so with one eye to the future and the possibility that one or more of the business founders will pass on whilst the business is operating. On this, it is important to remember that for a partnership, where there is no written partnership agreement dealing with the situation, the death of a partner forces the partnership to end. This may also result in the partnership bank accounts being frozen.
Conclusion
If you are going to come out of this article with one takeaway, then let it be this: The best way to ensure the orderly and peaceful succession of your assets after your retirement or death is to look and plan ahead.
This is not the type of thing that you leave to the last minute, and it pays to build your agricultural business with its inheritor in mind, especially when you are not the sole proprietor.
I realise that the topic is large, but that’s because its complexity makes it hard to unravel all the minutia that comes with it.
So, if you have questions, or simply would like to learn more on the subject, I’ll be doing seminars
on the subject of succession planning throughout the lower South West from May 27th through to the end of July.
Our June 2024 newsletter is now available. Have a read to find out what we have been up to in the first half of the year!
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