Succession planning is becoming a topic that is often talked about but can be daunting to action. We understand for many families it can be emotionally complex, however there are many ways we can help support you through a succession plan.

This article explores the many forms succession can take, the foundational steps to begin the process, and the tools and insights available to support farming families through this transition.

Succession Comes in Many Forms

Succession is not a one-size-fits-all process. It should be tailored to suit the goals, assets, and dynamics of each family. Some common pathways can include:

• Selling the farm and investing the proceeds for current and future generations. The investment of the proceeds can be a mix of investments, examples of these may include managed funds, shares, bonds, cash deposits, property ownership, loans to children etc.
• Parents allowing farm assets to be used under a limited guarantees arrangement to help children purchase their own properties.
• Selling shares in a farm-owning company and/or trading company to children or successors.
• Leasing the family farm to children, by allowing them to own the trading assets and operate the business while parents retain ownership.
• Children purchasing the herd and becoming 50/50 sharemilkers, building equity and operational experience.
• Selling land titles to children, who then lease them back to the farm trading company – providing cash flow for parents and ownership for children.
• Using existing equity to buy farms or assets with children in a company to share in returns, under an equity partnership model.
• Maximising land value with creation of titles to sell to invest, pay off debt or retain to provide options for the family at a future date.
• Diversification by allowing or leasing children land to run businesses on the family land such as tourism, venue hire, storage, commercial buildings or endeavours
• There is a range of different entity types that can be the right fit for purpose such as Trusts, Companies, Limited Partnership, Partnerships.

Each of the above examples needs careful planning, implementation and monitoring.

There are fishhooks with every option that can be managed if good advice is obtained and implemented.   It is very important that your team of advisors including your accountant, solicitor and bankers are included in all steps of the process to ensure success.

Important First Steps

Before any succession plan is developed, it is essential to understand the successors’ perspective, typically this is the parents being aligned with what they want. Your professional advisors should be involved in this first step. Key questions could include:

1. What are the successors’ assets and liabilities? Having a clear picture of asset values, net worth, liabilities, and equity is vital. Also understating who is the owner of all assets and liabilities.
2. What income do the current business and assets produce, this is both now and in the future?
3. What are the successors’ life goals? Whether it’s travel, financial security, or lifestyle changes, these goals shape the financial needs of retirement.
4. How much income is needed to fulfil those goals? This helps define what portion of the business or assets must be retained or sold.
5. How much control do the successors wish to retain? Some may want to stay involved in decision-making or retain ownership of key assets.

Once the successors are aligned the next steps could be to communicate with the key stakeholders i.e. children or current sharemilkers etc. This involves communicating what the successors wishes are and also understanding what the key stakeholder’s perspectives are.

SMASH – Paths to Farm Ownership

SMASH, or Smaller Milk and Supply Herds, is a NZ based initiative that supports small to medium-sized dairy farmers by providing practical education, networking opportunities, and succession planning resources.

SMASH completed a recent report that aimed to identify how farmers have successfully bought farms in recent years, the characteristics of these farm owners, and the challenges to farm ownership. This report may provide useful insights to start the process of succession and understanding the current environment for farm ownership process. See copy of report here.

In conjunction with SMASH we have presented at a number of succession events over the last few months. There is a free event planned for September that you are welcome to attend, information can be found here.

Please contact the partners at CooperAitken to discuss your succession queries and plans. We look forward to helping you achieve your goals.