Succession planning: are you ready?Industry Best Practice
This article has been prepared for informational purposes only, and does not replace independent professional advice. APAL does not provide tax, legal or accounting advice and assumes no responsibility for the contents.
In his 20 years at MB+M, Relationship Manager Anthony Pearson CA has helped farmers and families with succession planning.
“It’s a huge transition for people,” Anthony said. “We’re not just talking about now, next week or next year. We’re talking about planning for the rest of your life.”
Here’s his advice for starting a succession plan – and why you should do it earlier rather than later.
Start before there’s a crisis
When is the best time to start thinking about succession? According to Anthony, right now.
“This planning is a long process,” Anthony said. “It can be very complex, take a lot of consultation, and then once you put it into action it’s not immediate. It’s a big decision, and you don’t want to just be reacting to sudden events. You want to be prepared.
“It also gives successors some certainty about their future – who will take over the farm, how mum and dad will be cared for, what financial plans they need to make for superannuation or their children’s education.”
Have “brave conversations”
Talking succession – or possible farm exit – is never easy. A fear of the unknown can make people avoid those “brave conversations”, as Anthony calls them.
“Quite often farm succession is just assumed,” Anthony said. “They just don’t talk about it. It’s a difficult topic and can be quite emotional.”
Being emotionally ready and giving clarity to all parties makes the transition smoother – but not everyone can manage this on their own. That’s where having a third party can be useful.
“We’ve had clients who might all work together on the farm, but they simply don’t have a lot of conversations,” Anthony said. “Or they’ve started trying to address this and want a third party to come in and be neutral. We like to talk to all the generations and stakeholders separately, to find out what everyone wants, and then guide the discussion.”
Know your options
When it comes to succession planning, there is no one-size-fits-all approach – and there are more opportunities for people who start early.
“When we’re brought in to assist with succession planning, we’ll do research and present a number of options,” Anthony said. “There can be benefits to actioning a succession earlier and being assessed as an aged pensioner, for example, which they can’t do if they’re still owning and managing the farm. Bloodline trusts are another ‘on-trend’ option clients are exploring. Basically, you don’t know what you don’t know, and you want to make sure you’re not cutting off your options.”
Anthony has found that guidance around farm exits have been increasingly relevant.
“Most would never have even considered what life would look like if they weren’t on the farm,” Anthony said. “The increase in land and water prices makes farm sale a viable option for farmers who traditionally might have been struggling or were carrying debt. All of a sudden, they’re sitting on assets that are worth a considerable amount, with new options that could impact their life choices and lifestyle. We will map out what that scenario looks like and their investment options.”
Avoid unpleasant surprises
“It’s potentially dangerous to wait until the time when you need to action it, because the opportunities might have already passed you by,” Anthony said. “Tax savings, Centrelink benefits, or aged care savings, to name a few. If succession or exit has become necessary because someone can no longer manage the farm due to health reasons, they might need additional support that isn’t in place.”
The communication and clarity that happens during the succession planning process can also prevent misunderstandings.
“There can be an unpleasant surprise for someone who assumes they will be the successor, and then find out in the legal will that this isn’t the case. This can lead to unnecessary conflict or drawn-out legal situations. Unless there’s a plan, the risk of disaster for one or more generation of stakeholders is high.”
Call in the experts
Legal and financial guidance can help you prepare and action a succession.
“A lot of the time, we have clients who want someone to take care of everything,” Anthony said. “Not just put together plans based on tax and financial expertise, but coordinate with a solicitor or other services, so everyone is working together. It can take a few years between when we do the planning and when clients choose to put it into action. We leave it with them, check in every now and then, but at least they know what their options are.
“At the end of the day, it’s always the client’s decision. It’s our job to present all the options and take the emotion out of it.”