Farm succession can tear a family apart. Here is how to avoid that.
Farm Succession
It is all about avoiding surprises. And you do that by dealing with it during your lifetime.
This is one piece of advice with many more to come from Scott Patterson of Alternate Strategies in this episode.
Here is what we learned but please listen in as Scott explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
1 – Legal entity
Most mum and dad farms in Australia run as partnerships, while larger farms run through multi-layered trust and company structures.
It makes sense to separate land ownership from the farm operations and hold each in a separate entity for asset protection as well as tax.
2 – Succession
Succession is the transition of a business asset from one generation to the next, not necessarily within family. So any transfer – including sale – to a family member or third party counts as succession.
3 – Conflict
How smooth a succession goes depends on planning and communication. If all cards are on the table during the life time of the current owners and everybody knows what is going to happen, then you tend to have less conflict.
But if your will includes big surprises, then conflict is certain.
4 – Options
In the old days succession was straight forward. The farm went to the first-born son upon death of his father. Now there are many options. You might
- Transfer land and business in one go OR transfer at different times.
- Deal with it now OR let your estate deal with it.
- Sell now OR Sell Later and Lease now.
- Bequeath the farm in your will OR leave it open what happens.
- Sell to a 3rd party OR sell to a family member.
- Bequeath the farm to one child in your will OR all your children.
- Sell to a child OR gift the farm to that child.
Each of these options has CGT, stamp duty and tax consequences. And the potential for family conflict if not managed well.
5 – First Born Son
It used to be that the first born son gets it all. But that is no longer the case. Now it is about which of the children wants to stay on the land.
6 – Small Business CGT Concessions
Most family owned farms pass to the next generation CGT free thanks to the 15-year exemption and other small business CGT concessions. Because if the farm exceeds $6m and hence fails the maximum net asset value test, then the turnover over the past three years will probably be less than $2m and hence the turnover test.
Just probably. Turnover tends to fluctuate on a farm.
There is a lot more we discussed in this episode, but this is a first snap shot.
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