FFF Insight 16 - Farm Succession Planning Done Differently

Farm Succession Planning Done Differently: The Succession Ready™ Method 

For many farming families, succession planning has traditionally started with the big decisions. Who gets the farm? When should ownership transfer? What happens to the other children? What are the tax consequences? What should the wills say? What structures need to change? These are all important questions, but we believe there is an important step that should come before them: preparing the family to make those decisions. 

At Future Farming Families, we call our different approach the Succession Ready™ Method. Rather than starting with the solution, we start by building strong foundations. The principle behind the method is simple: Prepare the family first. Then build the plan. 

Why Farm Succession Planning Needs a Different Approach 

Traditional succession planning can become very solution-focused. A family meets with its accountant, lawyer or other advisers and quickly moves into discussions about tax, structures, ownership, asset transfers and legal documents. The risk is that technically good solutions are being developed before the family has established the knowledge, clarity and alignment needed to make good decisions. 

For example, Mum and Dad may have decided that the farming child should eventually receive the farm. That can quickly lead to questions about how the land should be transferred, whether duty exemptions or CGT concessions are available and how the other children should be provided for. But there are questions that should come first. Does the farming child actually want to take over? Are they ready to lead the business? What does their partner think? What does Mum and Dad's retirement look like? How will aged care potentially be funded? What do the other children expect? What responsibilities and obligations will come with receiving the farming assets? 

Or perhaps Mum and Dad simply say, "We want to treat all of our children equally." That sounds reasonable, but equal and fair are not necessarily the same thing in a farming family. One child may have worked in the business for 20 years, accepted a lower income, taken on responsibility and helped grow the enterprise. Another may have built a career and accumulated assets away from the farm. Before putting dollar values against an inheritance, the family needs to understand what fairness means in its own circumstances. 

The same applies to the next generation. Working on the farm does not automatically mean someone is ready to lead it. Future leadership may require financial knowledge, people management, strategic thinking, an understanding of debt and risk, the ability to work with advisers and an appreciation of the responsibility that comes with becoming a custodian of farming assets for another generation. 

These are not primarily legal or taxation questions. They are family, leadership, awareness, financial and preparation questions. If they remain unresolved, the family can end up trying to build a succession plan on weak foundations. 

Build the Foundations for Farm Succession 

That is why the first stage of the Succession Ready™ Method is Foundations — Tier 1. 

Foundations is designed to help a farming family develop the knowledge, awareness, clarity and confidence required before it moves into detailed succession planning. It gives families an opportunity to learn, connect, use practical tools, reflect on what they have learned and apply it to their own circumstances. 

This preparation covers much more than simply deciding who receives particular assets. Families consider leadership, communication, family expectations, fair versus equal, next-generation capability, retirement and aged-care needs, financial capacity, business performance, ownership and control, structures, estate planning, tax and duty opportunities, risk and contingency planning. 

Importantly, Foundations does not require the family to immediately have all the answers. In fact, one of the benefits of becoming Succession Ready™ is taking some of the pressure away from making premature final decisions. 

A family may not yet know exactly how the farm will ultimately be divided or transferred. That is okay. The immediate objective is to understand the issues, identify what is known and unknown, start the necessary conversations and become better prepared to make those decisions when the time is right. 

This is also why we place such an emphasis on leadership. Succession doesn't simply happen because a family reaches a certain age or because an adviser prepares a document. Someone needs to take responsibility for creating the environment in which succession can progress positively. Leadership is a choice. Clarity creates confidence. Conversations create change. 

Prepare Your Succession Blueprint™ 

As families work through Foundations, the learning and reflection progressively feed into their Succession Blueprint™. 

The Succession Blueprint™ is the family's roadmap. It brings together what the family has learned about itself, what it is trying to achieve, the important facts, the areas of agreement, the questions still requiring answers and the matters on which professional advice will eventually be required. 

This represents a significant change from the traditional approach. 

Instead of approaching an accountant or lawyer and effectively saying, "We need to do succession planning. What should we do?", a family can approach its advisers with a much clearer understanding of its position and say, "This is where our family is today. This is what we're trying to achieve. These are the issues we've identified. These are the areas we need your help with." 

The Succession Blueprint™ does not replace professional advice. It helps make professional advice more effective. 

That distinction is fundamental to the Succession Ready™ Method. We believe successful farm succession should be family-led and adviser-supported. 

Becoming Succession Ready™ 

The culmination of Foundations is becoming Succession Ready™. 

Being Succession Ready™ does not mean succession has been completed. It does not mean every decision has been made, every asset has been transferred or every legal document has been signed. 

It means the family has done the preparation necessary to move into the detailed planning stage from a much stronger position. 

A Succession Ready™ family has increased its knowledge of the issues. It has greater awareness of its financial, family and business circumstances. It has started the important conversations. Expectations are becoming clearer. Leadership capability is developing. Areas of agreement and disagreement are better understood. Risks and opportunities have been identified. And the family has prepared its Succession Blueprint™ to guide the next stage. 

This is why we describe Succession Ready™ as a milestone rather than the finish line. 

BUILD Your Farm Succession Plan 

Once the family is Succession Ready™, it can move into BUILD — Tier 2. 

This is where the Succession Blueprint™ is reviewed and developed into the family's detailed succession plan. The questions identified during Foundations can now be worked through with the appropriate professional advisers. 

Accountants may model taxation and financial outcomes. Lawyers may advise on ownership, estate planning, agreements and legal structures. Finance advisers and banks may consider funding requirements. Valuers may be required to establish asset values. Financial advisers may assist with retirement planning and investment needs. 

Consider a family with three children and a $12 million farming enterprise. One child has worked on the farm for 20 years and intends to continue farming, while the other two have established careers elsewhere. Starting with "How do we divide $12 million equally?" could lead immediately to an impractical solution involving excessive debt, fragmented land or even the sale of farming assets. 

The Succession Ready™ Method approaches it differently. What do Mum and Dad need financially? What has the farming child contributed? What responsibilities will that child assume? What debt can the enterprise sustainably support? What non-farm assets are available? What does each family member consider fair? Is preserving the farming enterprise an important family objective? What obligations will the farming child have as the future custodian of the land? 

Once those questions have been explored, the advisers can help the family design a solution around the outcome it is actually trying to achieve. 

The same principle applies to tax. Farming families can have access to significant CGT concessions, duty exemptions and other planning opportunities, and these should not be ignored. The financial consequences of getting succession right can be substantial. But a tax opportunity should support the family's succession objectives rather than determine them. 

In other words, first determine the right outcome for the family. Then work out the most effective way to achieve it. 

SECURE and Implement the Succession Plan 

The final stage is SECURE — Tier 3. 

This is where the agreed succession plan is implemented and the appropriate structures and protections are put in place. Depending on the family's circumstances, this may involve ownership transfers, restructures, wills, testamentary trusts, enduring powers of attorney, Family Farm Succession Deeds, financing arrangements, family loans, insurance, retirement funding, governance arrangements, asset protection strategies and contingency planning. 

At this point, the professional advisers are not trying to work out what the family wants from scratch. They are helping implement and secure a direction that has been developed through a considered, family-led process. 

That is a very different starting point. 

Why Farm Succession Planning Matters Financially 

The Succession Ready™ Method is centred on the family, but that does not mean the financial consequences are secondary. In fact, they are one of the reasons preparation matters so much. 

Poor succession outcomes can be enormously expensive. Family disputes can consume hundreds of thousands of dollars in professional and legal costs. Farming assets can be forced to sale. Businesses can become burdened with unsustainable debt. Tax and duty concessions can be missed. Investment decisions can be delayed for years because nobody knows who will eventually own or operate the business. 

There is also the opportunity cost of doing nothing. If everyone knows succession needs to be addressed but nobody knows where to start, major business decisions can remain on hold. Should we buy the neighbouring property? Build new grain storage? Invest in machinery? Expand livestock numbers? Bring another family member into the business? Take on additional debt? 

Succession uncertainty can affect decisions well beyond the succession plan itself. 

Good preparation creates clarity. And greater clarity allows families to make better family, business and financial decisions. 

Farm Succession Should Be a Positive Process 

There is another important difference in the Succession Ready™ Method. 

Farm succession is often presented as a problem — difficult conversations, family disputes, tax problems, ageing parents and uncomfortable decisions. 

Those risks are real, but succession can also be viewed very differently. 

For many families, succession represents decades of work, sacrifice and achievement. Mum and Dad have built something valuable enough to pass to another generation. The next generation has an opportunity to continue that legacy and hopefully make it even stronger. 

Succession should therefore also be a time to reflect, acknowledge what has been achieved and celebrate the opportunity to preserve, protect and prosper across generations. 

Preparing early makes that much more achievable. 

The Succession Ready™ Method: Farm Succession Planning Done Differently 

The entire approach can therefore be summarised simply. 

Build the Foundations. Develop the family's knowledge, awareness, clarity, alignment and leadership capability. 

Prepare the Succession Blueprint™. Apply the learning to the family's circumstances and develop a roadmap for where the family wants to go. 

Become Succession Ready™. Reach the point where the family is informed, prepared and ready to move confidently into detailed succession planning. 

BUILD. Review the Blueprint and work with professional advisers to turn it into a clear, practical succession plan. 

SECURE. Implement the plan and put the appropriate structures, agreements and protections in place. 

The traditional approach can start by asking: 

"What is the succession solution?" 

The Succession Ready™ Method starts with a different question: 

"Is the family ready to make those decisions?" 

That is the thinking behind succession planning done differently. 

The Succession Ready™ Method 

Build the Foundations. Prepare the Succession Blueprint™. Become Succession Ready™. Then build and secure the plan. 

Prepare the family first. Then build the plan. 

Ready to take a different approach to farm succession? 

If you're not sure where to start with farm succession planning or you've started but become stuck, our A Different Approach to Farm Succession webinar is a practical place to begin. 

We explain the Succession Ready™ Method, why we believe families should prepare before jumping to solutions, and the practical steps you can take to start moving succession forward. 

There is no expectation that you need to have all the answers or make the big decisions today. 

Start by becoming Succession Ready™. 

Register for our free farm succession webinar LINK 

Prepare the family first. Then build the plan.