“The biggest mistake anyone can make is to go into a discussion with a fixed view,” he said.
“It’s a consultative process and you need broad family discussion. The way you phrase questions will enable people to open up.”
The principal of McConnell Stafford-Bush and Associates is involved in a number of farming family succession conferences every year, either as a client’s accountant, independent facilitator or peer reviewer.
Drawing up a suitable succession plan for dairying families was often easier than for sheep and beef enterprises because the business could service a higher level of debt, he said.
“But as younger people get into the sheep and beef industries and intensify the business the opportunities increase.”
Stafford-Bush said the best ideas often came from farming families themselves.
Recently he was asked to peer review a succession plan where the farmers involved had been told they couldn’t do what they wanted to.
“But they could,” he said.
“They hadn’t had a full family discussion.”
He’s very keen on the use of a deed of family arrangement to cement in the whole family’s understanding, which he describes as a fairly new tool in the succession toolbox. It’s a legally binding agreement that sets out what the family members have agreed to in a succession plan. It’s often used in splitting up estate assets where all family members agree to vary a will or distribute assets differently to the way a will indicated.
“It locks things in place,” he said.
“It usually takes some time from beginning to end as some of the parties can be comfortable with the proposed plan then change their minds.”
This can be because of the influence of in-laws but Stafford-Bush said the deed of family arrangement is often put in place with the express aim that won’t happen.
“It gives certainty,” he said.
“Once the deed is drawn up all the parties involved can get independent advice.”
The process is formalised when they sign their names to it meaning there’s much less risk for successors of changes being made.
“I’ve seen plenty of plans where siblings will come back for a second or third bite of the cherry,” he said.
One such instance resulted in the legal case Walker versus Walker where a farming family sold then bought another property, crystallising a figure that was significantly larger than some of the non-farming siblings had thought would be involved.
“Farming families tend to be very private about the asset value they’ve accumulated,” Stafford-Bush said.
“But an independent person puts everything on the table.”
He believes it’s almost always impossible to end up with equitability between successors.
Stafford-Bush warns farmers against dealing with succession by means of their will because there’s the opportunity for non-succeeding children to make a challenge as seen in the Scott versus Scott case. This shouldn’t be possible with a deed of family arrangement, lawyers say.
“But time will tell,” he said.
“And it’s not difficult to do at all as long as all of the family are involved. But as soon as some of it goes behind closed doors it invites siblings to question what’s happening.”
To this end he said process was uppermost, with minutes of meetings being kept. Ideally this was a role best carried out by the independent person chairing the family meeting to enable the best discussion.
While farmers might want their lawyer or accountant involved, Stafford-Bush said it’s hard for these professionals to chair the discussion, take minutes and be independent all at once.
“There’s often a debate about when the lawyer and accountant should come in to discussions,” he said.
“Some families want them in early, particularly if there are discussions about tax implications and future business structures.”
Often a number of meetings, at least three or four, will be held over a six to 12 month period. Stafford-Bush said this timeframe is often required in order to work out issues such as what level of income retiring parents will require in the future.
“The biggest thing farming families don’t want is their whole life set out in court with their whole family undressed,” he said.
In cases where the family simply can’t agree it can be better to sell the farm and for the parents to use the money to retire elsewhere.
“That can be because the farm has been built up by their hard work, not because it’s a third or fourth-generation property,” he said.
“And if it has it may not have come through the husband’s family. If you have an inkling you want the farm to go to the next generation you need to start early.”
While parents may still want to be involved in the day to day running of the farm, Stafford-Bush said that wasn’t usually the case for siblings not living there. But they do want to spend special occasions such as Christmas and school holidays on the farm to keep family traditions alive.
Sub-dividing off a piece of land around a house on the farm can give them this option, and the dwelling could also be rented out when not occupied. Agreement would need to be reached as to who would manage the property and receive the income.
In the Franklin and Waipa districts if a transferable development right is held this could be sold off to make the succession plan more viable, or a new house could be built on the farm. But high property values in these areas mean a large amount of debt would have to be taken on to make an equitable division between children.
“Some people argue that succession is easier these days because there’s often only two or three children rather than five or six,” he said.
“But the value is much higher to the succeeding person.”
Searching out what works
Stephen Stafford-Bush urges farmers to discuss succession widely with their rural professionals and other farmers before making any decisions.
“Look for ideas and people who will share what works and what doesn’t,” he said.
Some successful solutions he has
seen are:
A family with four children where three living off-farm were happy for their brother to take over the property but wanted to come back for special occasions such as Christmas. They agreed to sub-divide off a house and some land so they could do so. This satisfied their wishes and also meant the financial hurdle to their brother of taking over the farm wasn’t as great as it could have been.
In a family with three children, all were given the opportunity for a private education, but only two took this up. These two agreed their parent’s farm shouldn’t be split three ways because their brother had remained onfarm. The solution was to sub-divide off a house on a runoff which, with non-farming assets such as a bach, went to the non-farming siblings. The runoff was leased back to the farming son. He agreed that if he stopped farming within a certain period there would be a redistribution of assets and he also undertook to pay the costs of the parents going into care if that was required in the future.
Parents thought one son would take over the farm so set up a trust and company arrangement whereby as he purchased capital equipment, he increased his percentage share of the company.
