10 key considerations of farm succession planning
Transferring farm ownership and management from one generation to the next is rarely easy, writes James McDonnell, Financial Management Specialist at Teagasc, who offers key advice on succession planning.
For most farm families succession is not a single event but a journey, with many staging posts along the way. There are legal, financial, and emotional and social dimensions - each of which can complicate or delay the succession process.
Although it’s sad to say, farmers as a cohort are an aging population. Fewer young people are entering farming, as urban job opportunities and higher education draw potential successors away from rural life. The demands and uncertainties of agriculture can deter younger people from taking over family farms.
The financial viability of farms is also a consideration for potential successors. Many farms in Ireland operate on narrow profit margins, making it challenging to support multiple generations. The extremely high cost of land and the capital required for modern farming equipment further exacerbate these issues. Successors may be reluctant to take on the financial burden associated with farming, especially where alternative career paths can offer stable and potentially higher income.
Family dynamics
Beyond the tangible challenges, farm succession is deeply intertwined with family dynamics and emotional considerations. Attachment to the land and the family legacy can create strong emotional bonds, but it can also lead to conflict and difficult decisions. There is often a powerful desire to have the family name attached to land. Open communication within the family which addresses expectations, roles, and responsibilities is essential. Establishing a shared vision for the farm's future can help avoid potential conflict and ensure a smoother transition.
When you find yourself on the succession journey, what are the key considerations?
By following the steps outlined, you can create a comprehensive plan that meets the needs of your family and ensures the long-term sustainability of the farm. While there are significant challenges, proactive planning and leveraging tax reliefs will help you navigate the financial complexities of succession. Mediation services and your Teagasc Advisor can offer vital support in addressing family dynamics and planning needs. I wish you well on your journey of creating a future for your farm family.
1). Start early
Begin the succession planning process as early as possible. It's essential to have open and honest discussions with family members about the future of the farm and their roles in it. By putting it on the long finger, you might find that some taxes become unavoidable, placing an unnecessary financial burden on the successor. Make or update your will. A will then becomes the ‘backstop’ if the unforeseen happens before the succession plan is completed.
2). Assess goals and objectives
Identify the goals and objectives of the farm succession plan. Consider factors such as preserving the family legacy, ensuring financial security, and maintaining the viability of the farm for future generations.
3). Understand legal and financial considerations
Familiarise yourself with the legal and financial aspects of farm succession, in particular the tax and inheritance laws. Navigating the rules requires careful planning. Seek professional advice from solicitors, accountants and your local Teagasc Advisor.
4). Identify successors
Determine who will take over ownership and management of the farm. This may involve one or more family members. Over the last decade, DAFM registered farm partnerships have become an important stepping stone in the succession process, especially where the generation gap is short, and the farm succession plan is a staged process. There are also attractive incentives to use this model (higher grant aid and tax credits).
5). Develop a succession plan
Create a detailed succession plan outlining how the transfer of ownership and management will occur. Include provisions for decision-making, asset distribution, and the roles and responsibilities of each party involved.
6). Communicate effectively
Maintain open and transparent communication with all family members, particularly those directly involved. Discuss expectations, concerns, and any potential conflicts openly to address them early on and find mutually agreed solutions. Mediation services help families discuss their goals, expectations, and concerns in a structured and neutral environment. This process can prevent disputes and foster a collaborative approach to succession planning. Mediators can also assist in developing formal succession plans that outline roles, responsibilities, and timelines, providing clarity and reducing uncertainty
7). Taxation
Irish Capital Taxation is complex. However for the majority of farms, there will be little or no tax due if the transfer is well planned. There are good tax reliefs available (see Table 1), but each have conditions attached. Talk to your local Teagasc advisor, who can help you prepare for a meeting with your tax advisor.
Table 1: Tax reliefs available
| Tax on farm transfer | Paid by | Relief available* | Rate |
|---|---|---|---|
| Capital Acquisitions Tax | Transferee | Agricultural relief | 33% |
| Capital Gains Tax | Transferor | Retirement relief** | 33% |
| Stamp Duty | Transferee | Young Trained Farmer Relief 0% | 7.5% |
| Consanguinity Relief 1% |
*With all reliefs, there are both qualification criteria and conditions to be abided by in order to avail of them. ** The ceilings available reduce from 1st January 2025.
8). Address financial security
Ensure that the retiring generation has adequate financial security and retirement planning in place. Consider options such as pension plans, savings accounts, and investments to provide income during retirement. Long term care and the “Fair Deal” scheme should also be considered. Family settlements sometimes create a huge burden on the successor and hold back the farm. Catering for siblings of the successor needs to be carefully managed so that the financial stability of the farm is not undermined.
9). Document and review the plan regularly
It is highly advisable to put the succession plan in writing. It should be reviewed regularly to accommodate changes in family circumstances, farm operations, or legal requirements. Too many plans are completed only when there is a sudden, life changing illness or other major family event. Consequently they are rushed. This can lead to tax liabilities and family disagreements.
10). Seek professional guidance
Seek professional guidance throughout the farm succession planning process. Transferring the family farm clinics, organised by Teagasc, offer one-on-one consultations with experts in legal, financial, mediation, and farm management fields. These help families understand their options and make informed decisions.
Transferring the Family Farm Clinics
The Teagasc Transferring the Family Farm Clinics commence on October 1, 2024. These clinics are designed to help farm families through the process of transferring the family farm. Find the full list of Transferring the Family Farm Clinics here.
The above text first appeared in an article titled: 'How to manage the farm succession process for everyone's benefit' which appeared in the September/October edition of Today's Farm. Find out more about Today's Farm here.