Farm transfer and succession are matters for every farm family

The subject ‘Transferring the family farm’ is one that every farm family should plan for during the life of the farm, Farm Management Specialist at Teagasc, James McDonnell shares key details of what’s involved.

People in general do not like to talk about succession and inheritance. It is a sensitive subject area 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 business 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 time. Planning early for succession allows for many of the main issues to be addressed and resolved before transition starts.

Five steps to successful farm succession

Step 1 – Make a Will

Making your Will is quite a significant legal task to undertake. This legal document sets out how you wish your assets to be shared out on your death. When you die, your affairs need to be settled up. There are likely to be bills that need to be paid and property to be distributed. A Will is the simple mechanism that allows you to decide what happens to your assets with minimum fuss and delay.

If you die without making a Will, then law (Intestate) will determine what happens to your assets. The 1965 Succession Act is the relevant legislation that now decides on how your assets are distributed. Irrespective of your age, state of health or financial status, it is imperative that you have a legally recognised valid will. Completing the Will allows you to use it like an insurance policy should you die prior to completing your succession plan.

Step 2 – Communication within the family

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.

Step 3 – Review the cost and timing of completing the plan

Getting good taxation advice is a key ingredient in creating a successful succession plan. It is important to complete a taxation calculation, prior to any handover taking place. If there is a potentially large tax bill, then it might be possible to mitigate against this by adjusting the plan or time-lines of the transfer.

With good advance planning and preparation, the issue of taxes should not have a major negative impact on the farm business transfer. As part of a farm transfer, there are three significant tax triggering events occurring:

1. The transfer of assets (land, entitlements, machinery, livestock) between the parties involved in the transfer;
2. The finishing up of the business in the hands of one person;
3. The starting up of the business in the hands of the new farmer.

The Department of Agriculture, Food and the Marine (DAFM) has a grant available that can be used to cover some of the costs in relation to getting advice in relation to farm succession. This grant is called the Succession Planning Advice Grant.

Step 4 – Implement the succession plan

Implementing the plan will involve a number of tasks, such as completing the legal transfer of assets, getting valuations of assets for making tax returns, changing the ownership of the herd number and making contact with the DAFM so that any schemes the farm is involved in can be taken over by the new farmer. For some, it may involve setting up a farm partnership. So allow plenty of time to get this work done as there are many deadlines with DAFM schemes. It would be wise to consult with your advisor regularly during the process.

Step 5 – Update and review your will

Once the plan is completed, the will needs to be reviewed in case there are any unintended consequences. The new farmer should now also complete a will as they now have significant assets in their name.

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 many 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 stages are the children at?

Conclusions

Farm succession is a very complex area. Farm families should use all the available supports available. Follow the five key steps outlined above. A poorly thought-out plan could be costly from a taxation perspective and result in poor family relationships. Communication is a key part 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.

For further information, visit the Farm Succession page on the Teagasc website.

This article by James McDonnell, Farm Management Specialist at Teagasc, was first published in the BEEF 2024 Open Day booklet.

Transferring the Family Farm Clinics

Teagasc run Transferring the Family Farm clinics every year. These clinics are designed to help farm families through the process of and all aspects that need to be considered when transferring the family farm. Dates and locations of these clinics are available here.