5 things to consider when transferring the family farm

The transfer of land ownership does not always go smoothly. While there is no magic formula to guarantee the successful transfer of a farm from one generation to the next, major difficulties can be avoided if plenty of time is invested in the transfer process.

Available to attendees at the recent series of Transferring the Family Farm Clinics, Teagasc has developed a publication titled: ‘A Guide to Transferring the Family Farm’, below are five steps listed within to aid the transfer process.

1). Ask your advisor

If you have been thinking about transferring your farm, then your first port of call should be to your Teagasc advisor. Your advisor has a detailed knowledge of your farm business and can therefore provide sound advice throughout the transfer process.

At the initial appointment with your Teagasc advisor, you need to tease out what exactly you wish to happen. Who do you want to transfer the farm to and when do you want this transfer to happen?

Your advisor should be able to inform you of the implications of this transfer on the farm business in terms of farm scheme participation e.g. BISS, CRISS, ANC, ACRES etc. Your advisor will also give you guidance on specific issues that you should discuss with your solicitor and accountant.

For many farmers the prospect of transferring their farm business is daunting. There are no second chances in farm transfer, it must be done correctly the first time around.

It is worth noting that Teagasc advises on many farm transfers each year and has built up expertise in the area which will be of benefit to you. While no two farm transfers are the same, experience has shown that there are basic steps that should be followed in all cases. The key to a successful transfer is to plan the process carefully and complete it in manageable stages.

2). Bring all family members into the transfer process

Bringing all family members into the transfer process is a safeguard against future problems arising. We are all aware of situations where farm transfers turn sour, resulting in family disputes and perhaps even financial ruin.

To avoid this situation on your own farm, plan your transfer process in a timely manner and communicate your plans to all involved.

If you have decided on a lifetime transfer of the farm or whether you are going to pass the farm on via your Will, there is a clear need to keep all involved informed. A prolonged guessing game with regard to who the farm successor is does not benefit any party and can lead to resentment and ill-feeling amongst everyone.

The age of all family members at the time of farm transfer is important. If a decision is made to transfer the farm to an eldest son while there are still younger children to be educated, then provisions must be made to pay for this education.

Similarly if the parents transferring a farm are too young to qualify for a pension, then provisions must be made to provide an income for both the new farmer and the parents. While one spouse may be actively farming, it is vitally important that both spouses agree on the farm transfer process in order to prevent difficulties further down the line.

Family settlements to non-farming children should be openly discussed and agreed upon before the farm transfer takes place. Irish farms tend to be asset rich and cash poor, so the gift of a site rather than cash has become an increasingly popular family settlement. In the past, new farmers were often burdened with unrealistic cash settlements for non- farming siblings which resulted in slowing down investment for the development of the farm.

It should be noted that there is no onus on the new farmer to give sites to non-farming brothers or sisters so this issue should be resolved before farm transfer takes place. Decisions taken at this stage could have tax and or legal implications, you should involve your solicitor and tax adviser at this stage also.

3). Consider your future

So you have decided to transfer your farm and retire from farming. Going to improve your golf game? Travel to all those far-flung destinations you have dreamed of?

Before you sail off into the sunset, you need to consider your future in detail. Some important criteria to look at include your age, health status and living expenses. While you can be considered lucky to be retiring at a young age and in good health, you will undoubtedly need income to support yourself over the coming years.

Future income from either state or private pensions needs to be examined. Will you have enough money to meet your living expenses? Too often in the past, farmers have transferred farms leaving no provision for their own future income. It is vital that this issue is resolved at the time of farm transfer, one solution being a private contract between parents and the new farmer in which the new farmer transfers an agreed sum of money to the parents on an annual basis. It is important to consider the viability of the business if this is being considered.

We all dream of enjoying our retirement but many farmers only actually stop farming when they are forced to do so through ill-health. It is unwise to postpone farm transfer until ill-health occurs. Should you be unfortunate enough to be struck down with a sudden illness e.g. stroke, heart attack, you may be suddenly incapable of making decisions regarding farm transfer.

Furthermore if you are unfortunate enough to need long-term medical care in a nursing home the high medical costs involved will have a considerable negative effect on your farm business and the value of your entire estate.

4). Define the farm business

Perhaps the most important step in the farm business transfer process is to define the actual farm business. Farmers have an in-depth knowledge of their business but a lot of this information is not written down and may only be known by the farmer himself.

If you were struck down by a serious illness in the morning, could someone step in and run your farm business efficiently and effectively? The transfer of your farm must be used as an opportunity to fully separate the farm business from the existing farmer and place the reins of ownership firmly in the hands of the younger generation.

Fill in the simple table below to begin the process of defining your farm business. A comprehensive document titled Personal Affairs Checklist is available from the Institute of Chartered Accountants in Ireland.

It is also important that you define your business relationships with others. Who is your contact person in your bank? What agricultural merchants do you deal with? Do you have outstanding bills for purchases made e.g. feed, fertiliser etc. Perhaps more importantly are you owed money from others for sales of hay, straw, silage etc?

It can be a good idea in the early stages of the succession process to bring your successor along to meetings with the bank, accountant, merchant etc. This will enable the young farmer to get to grips with the complex nature of the farm business and ensure the smooth transfer of business interests from one generation to the next.

5). Explore all the options

Before your start the process of transferring your farm, you need to examine all the options open to you.

Traditionally Irish family farms were passed to the eldest son. However, with the increase in third level education, it is now becoming more common that there are no children actively farming. Furthermore perhaps none of the adult children are interested in becoming farmers.

New and different ways of retiring from farming are becoming more commonplace. Entering a partnership with a non-family member, leasing out or selling land are all options which should be explored.

With record numbers of agricultural students now leaving agricultural college, the availability of farms for partnerships or leases would be seen as a good opportunity for many of these graduates to start off in the business of farming.

In addition leasing out is a tax efficient way of retaining an annual income from your land. While selling land is often seen as the last option for retiring farmers, it should be explored, particularly in cases where no children are actively involved in farming. For some, planting forestry, is an option as a way of continuing to farm with significant reduction in the labour requirement, and maintaining some farm income also.

For more insights, access the ‘A Guide to Transferring the Family Farm’ publication here.