03 June 2023
Farm succession and inheritance planning
The subject ‘transferring the family farm’ is one that every farm family should plan for during the life of the farm.
People in general do not like to talk about succession and inheritance. It is a sensitive subject, as farmers may feel it marks the end of their farming career. If the goal is for the farm business to continue functioning (well) beyond the tenure of the current owner/operator, then talking about and planning for succession is vitally important to ensure a smooth transition and viable future.
It is important to understand that within farm transfer, there are two processes: succession and inheritance.
- Succession is defined as the gradual transfer of management of the farm from one generation to the next.
- Inheritance is defined as the legal transfer of the farm assets from one generation to the next.
Planning for both these processes in an open, collaborative way is critical to avoid extreme conflict and breakdown within the family unit.
Succession planning
Succession is very important for the farm business, but it can be difficult and complex. The farmer and spouse are faced with trying to maintain a viable farm business for the next generation, treat all of their children fairly (not necessarily equally) and provide financial security for their own retirement.
Fortunately, succession also incentivises the next generation to expand or change the farm in order to generate sufficient income for additional family members, and it provides the necessary resources, labour and skills to carry the plan through.
It is important to note that succession is not a single event but a process which occurs over a period of time. Planning early for succession allows for a lot of the main issues to be addressed and resolved before transition starts. The goal in involving all family members in planning is to build consensus over the plan and proposed outcomes for the farm. A key starting point to this is establishing the needs, expectations and fears of all family members with regard to the farm business.
Communication
Effective communication is the key ingredient to successful succession planning. It allows for family members to share concerns, decide on options available and what actions to take. It also allows for effective planning and helps prevent disputes, misunderstandings and unnecessary anger.
Typically, when it comes to discussions around succession and inheritance, farmers are “passive” communicators. This means that there are a lot of assumptions around who is getting the farm and the plans for the future, but these are not always explicitly communicated to the people involved.
When communicating on succession and inheritance, it is important to discuss and clarify the three key aspects of how family, ownership and management will play out, overlap and change over time/at different points in the future. When planning any discussion on succession, the following should be considered:
- Who should be involved in the discussion?
- What needs to be discussed?
- When and where to meet?
- What life stage are the children at?
Conclusion
Communication is the key to effective succession planning. It is important to have the discussion early and with all family members. This should help prevent disagreements and ensure that all family members have had the opportunity to discuss their needs, fears and requirements as to how the farm business will continue.
This article by James McDonnell, Farm Management Specialist, first appeared in the Farming for a Better Future open day book. For more information on succession and inheritance, click here.
Also read: Examining the collaborative farming options
Also read: The Green Cert – a course with many benefits
Also read: Farm schemes supporting young farmers