Farm Succession and Inheritance

In June 2007, the Rural Industries Research and Development Corporation issued a report titled “Farm Succession and Inheritance” by Elaine Barclay, Roslyn Foskey and Ian Reeve. The report might seem dated now, but I keep referring back to it because in my view, the key findings are very noteworthy for all farming families and reading the report caused a shift in my thinking.\nYou can locate the study at https://rirdc.infoservices.com.au/items/07-066. The study compared Australian farm transfer trends with those experiences overseas, but with a greater focus on the transfer of the intangible farming family assets such as managerial skills and farm knowledge rather than the transfer of land. Key conclusions of the report are that: While there is a trend in Australia to corporate farming business structures the majority of farm enterprises operate under legacy family business structures. These structures are “legitimate as a means of protecting values pertaining to property, family and inheritance.

However … younger farmers favoured newer forms of business structure …… there is an opportunity for change.” The issues of retirement reported in this study are very consistent with our experience. Australian farmers plan to retire later (70 and over) and more Australian farmers prefer semi retirement than those in other countries. While the study does not indicate the reasons for this, we consider that this occurs because less of the next generation wishes to take over, a lack of retirement funding, and despite a higher preparedness to address succession planning than their overseas counterparts, Australian farmers have difficulty in letting go. Farmers in retirement identified that they will miss “independence, hard work and a purpose in life”. We have found this last matter, a purpose in life, to be key and have coined the phrase that “you cannot leave something unless you have somewhere to go”. The phrase does not necessarily refer to a physical location, but also an emotional and “purpose” place. The study also reports the key items farmers will not miss in retirement as the physical hard work, drought and financial stress.

Regarding succession, the study identified: “Just over half the farmers surveyed had identified a successor for their farm business. These successors are most likely to be a son.” Presumably therefore, half the farms surveyed did not have or had not identified a successor, despite Australian farmers identifying successors at an earlier age than overseas counterparts (but usually not until after age 50). Farm size clearly impacts upon successor’s options. In larger farms, the “direct route” towards taking over control of the property by working alongside the older generation was most likely in Australia, Canada and England. Although in Australia, more successors were taking a “professional detour” before assuming responsibility for the farm, and particularly for smaller farms where economics require the successor, to be more than likely, be working off farm. The successors’ tend to be better educated than the older generation. In our view, they need to be, as farming has become more complex in terms of the variety of farming systems and practices adopted, the complexity of financial market and products and the economic necessity that farmers must now operate a “best business practice approach” to promote farm financial sustainability and security.

The study reports that Australian and English farmers have similar patterns for transferring farm management responsibilities, with financial decisions the last responsibility to be transferred, and often the land ownership not transferred until death. In practice, we see the legal transfer of more property occurring before death, and that this circumstance is more evident since the study. One of the most important conclusions for me is that “as farmers in Australia are descended from the same European stock, it is very likely that the way they approach retirement, inheritance and succession is strongly influenced by the same norms and values that have determined traditional European approaches to succession and inheritance of farms”. Have a look at this table (taken from the study): The table shows how other countries (cultures) transfer responsibility for farm decisions compared with Australia and England. French and Canadian manage succession in a very different timeframe to the Australian / English model, which is a slower progression, especially with regard to financial decisions. This is not to suggest that the French or other countries management of succession is better.

It is just different, and another way of thinking. This last conclusion has made me question the ideology or paradigms applicable to Australian succession planning and opened my mind as to the opportunities to do things differently. Other thoughts include: In many succession engagements, I have asked a farmer how he acquired his property from his parents, as this approach will influence that farmers preferred succession approach and thinking. I also have the expression “The 7 most expensive words in business are: “We have always done it that way!”’ ringing in my ears. I question whether our legal systems, derived largely from the English systems, may also have an impact on the way we think and act in relation to succession planning. We should not be “stuck” in the Australian / English paradigm of succession management, but build a succession approach that meets family goals with less emphasis on a traditional approach. Think outside the square!

Interestingly, one of the recommendations of the study in 2007 was that “The Government persist with and promote farm succession education programs to encourage the movement away from traditional inheritance norms and practices”. My advice is not wait for “The Government” to persist and promote – take it upon yourselves (or with an adviser) to manage your succession planning process on the basis of family values and goals, rather than traditional approaches.\nWritten by Peter Debus, Director of PrincipleFocus NSW, a Chartered Accountant and Chartered Tax Adviser.