The Roll of Wills and Other Legal Agreements in Succession Planning

Off-farm siblings and family equity

There is a saying often employed in succession planning circles that a will is not a succession plan.

In addition to achieving financial security for exiting generations, what we are seeking to assist successors in achieving through a formal succession planning process, is the security of knowing that having committed to a future of farming, the assets so integral to their future success will always continue to be available to them. In addition, for off-farm siblings and in many cases their parents, the security of knowing that whilst not involved in the ongoing family business, their being part of the family sees them receive an appropriate share of family wealth.

By their very nature, wills on their own are unable to achieve this desired level of security for all.

That is to say the terms of a will can be changed without due consideration for the commitment that others have made to its original intentions. Wills can also be challenged by parties deemed legally entitled at the time of death, but who at the time of agreement and commitment, either had no reasonable cause for inclusion in its gifts or had expressed no discontent with the arrangements.

Having said that, in practical terms the financial strength of the farming balance sheet may be substantially exhausted having addressed the independent, financial security objectives of the exiting generation and, at the same time, ensuring future business security for farming successors through the transfer of ownership in farming assets. In such scenarios the only avenue left for the achievement of continued farming as well as family equity is by invoking the concept of an “early inheritance”. In so doing and by default, off-farm siblings rely on Mum and Dad’s wills to deliver equity at the time of their deaths through the distribution of lifestyle assets and the remaining retirement investment pool.

Accordingly, the drawing of a legally binding, Family Financial Agreement that encompasses all aspects of the agreed and finalised arrangements and also governs the gifts envisaged under wills, is an essential element to any comprehensive Succession Plan that delivers security for all stakeholders. Whilst such an agreement can overcome the shortcomings of wills previously discussed, it must be recognised that family members who proceed, relying for equity on the “wrong end of an early inheritance”, continue to carry the risk of Mum and Dad’s longevity as well as possible negative impacts of future financial events.

There is no “textbook answer’ or “best practice formula” for adoption here.

Family equity can only be achieved when all family members have had their expectations uncovered, discussed, and logically addressed, in a manner giving rise to a sense of alignment in the light of what can prudently and practically be achieved in tandem with a viable farming transition.

Whilst not an exact science, following a structured framework in analysing differing concepts of equity not only assists in providing comfort in the context of “having done the best possible for all” but is also an effective tool in educating and conveying reason, to all family stakeholders, for what may be seen as tough, “knock on” implications of the concepts adopted.

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By proactively planning for the handover of your farm business and related assets, contemplating the future needs of family group members, borrowings and appropriate entities, be prepared for the unexpected when it happens and gain certainty for the next generation wanting to take over the family business. Wayne Turner understands the difficulty in starting those conversations and can have you and your family turn those into a positive and constructive succession planning process. Call Wayne on 07 4669 9800.