There is a Chinese proverb that says, “Wealth never lasts for three generations: First Generation creates the wealth, Second Generation grows the wealth, Third Generation spends the wealth”.
While this may not be as true in farming, as many farms continue for multiple generations, the challenge of passing a farm business from one generation to another can be fraught with difficulty, and if not approached in the right manner, can split families apart.
Where once the farm would automatically pass to the eldest son, today it is accepted that other children, including daughters, may have aspirations of returning to the family farm. This results in the need for families to consider and explore career opportunities the farming business may be able to provide all children.
Rosemary Bartle, Head of Succession Planning with Rabobank Australia, says “Today, children are tending to return to the family business later and are partnering later, which has changed the succession environment for farming families. This means that often, those returning to the farm, have had off-farm careers and life experience, and have partners who bring considerable skills to the business and whose point of view also needs to be considered. With this comes a higher level of expectation.”
The complication with farms of course is that they can represent more than just a business, they also represent family history and legacy, a home and often a childhoodsanctuary, with this sense of nostalgia being every bit as powerful as a desire to run an agricultural business.
While the desire of the younger generation to return to the family farm will often wax and wane with the changing prosperity of agriculture; the favourable environment in which to raise a family, be your own boss, together with improvements in technology and communication also help to make farming an attractive career and lifestyle choice. Over the last few years, changes in work arrangements necessitated by Covid have resulted in many actually seeking rural settings from which to work, so why not the family farm?
So what happens when the farm patriarch decides to relinquish the reins? How can an asset which is capital rich, but income poor, be shared fairly between offspring?
And hell, what if the partner of one of the offspring has some crazy notion about getting involved in the process, too? Well isn’t that just a recipe for disaster?
Apparently not, according to Rosemary.
“If families are to be happy with succession arrangements, it is really important that all family members (including the in-laws), discuss what their goals are, what the opportunities are, and what “fairness” for all family members might look like.“
“This is not a one-off discussion – it needs to take place throughout the lives of the younger generation and is something that needs to be reviewed every time the family or business environment changes, such as new partners, a death or someone starting to work in the business”.
Rosemary said it is important to understand that expectations are often set early and may be difficult to change as business conditions change. So flexibility, awareness and education are important for all family members. This involves a lot of quality communication and not just a lot of talking.
Coming along to a workshop and hearing about the importance of Succession Planning may not solve family succession disputes, however it will make families aware of the issues they need to consider, the need for open and honest communication and how to go about developing an agreed and amicable Succession Plan. Taking that first step is the hardest but the most critical.
Rabobank’s many years of experience in assisting families transition the farming business from one generation to the next, has enabled the development of a set of guidelines which ensure that the Succession journey is given every opportunity to succeed. The most important of these are:
- Ensure all family members discuss, openly and honestly, what their wants and needs are, their expectations, issues and concerns. Commonalities and priorities will help to inform which options enable these goals to be achieved. Avoid the temptation to jump into “solution mode” in these early stages
- Communication of this nature can be difficult and highly emotional, hence the use of an independent facilitator, together with an off-farm venue for meetings, helps to establish a safe environment, ensures all family members are treated fairly, heard and understood, and that all issues are on the table with implications fully explored
- A thorough understanding of the business’ financial situation and capacity is essential to ensure that the options developed are realistic and achievable
- Establishing fairness is critical. What is fair is determined by the family – there are no rules!
- The family needs to agree on what is to happen and when it is to happen. Understand that this will inevitably involve compromise and change. Prior to making final decisions on the preferred options, involve the business’ professional advisors such as accountant, solicitor, and financial planner. Remember that plans are about the family achieving their succession aspirations; plan should not be driven by taxation issues nor asset protection.
- Plans should be documented, with legal agreements put in place as required, and a timeline of reviews and trigger points put in place.
Rosemary Bartle will present a session on Succession Planning at the Gippsland Red Meat Conference which has now been postponed to Tuesday October 26th at the Riviera Convention Centre.
The Gippsland Red Meat Conference is brought to you by the Gippsland Agricultural Group, in partnership with the National Recovery & Resilience Agency, Agriculture Victoria, Meat and Livestock Australia and East Gippsland and Wellington Shires, and support from major sponsors Elders, Nutrien Ag Solutions, Maiagrazing, Ruralbank, the Herd Improvement Co-operative and National Australia Bank.
Tickets for the conference are available at https://gippslandredmeat2021.eventbrite.com.au or follow the link on the Gippsland Agricultural Group facebook page or contact Even Manager Craig Bush at firstname.lastname@example.org