Succession planning is a very sensitive topic, and when the time comes for younger generations to take over the family business, most of the seven deadly sins can make an appearance. Here AF looks at succession from the other end – the benefactors.
Never a good time
It is very rare for a farm or rural business to pass from parent to child in a controlled and planned way. It is usually precipitated by death, illness, financial strife or another significant life event. And when there is more than one beneficiary, acrimony is often only the reading of a will away. A prominent real estate disputes lawyer once confided that he had overseen a very successful practice, largely based on representing dissatisfied farming siblings!
Recent examples of family disputes arising from ambiguous or non-existent planning have been reported in the farming press in recent months. Just last week Farmers Weekly had an article stressing the importance of planning ahead for succession.
Preparing the ground
As the next generation you may not be aware of your parents’ intentions, and we are all squeamish about discussing death, but you must broach the topic openly and early. This is particularly important if there are siblings working on the farm, and one or more away from the farm. The non-farming sibling does not have the same urgency to resolve the issues, but must not be allowed to kick the can down the road!
This is personal
As the son of a farming family, I will use our experience to illustrate one route to succession planning. We have a modestly-sized arable farm in North Norfolk and have diversified with a campsite which my sister runs, and we have planning permission to convert our brick and flint barns into houses. There are four further dwellings. Both my parents are still alive and my sister and I are the only children.
What to discuss
The first thing to resolve is a lasting power of attorney. This may seem premature, but this is exactly the time to do it. If your parents have lost or are losing capacity, it’s too late. We were very lucky that my parents took this first step nearly 10 years ago when they were in their mid 60’s.
There are then two key things to consider, the property and the running of the farm.
There needs to be a frank discussion about who will inherit what, and who will live where. It is vital that everyone is honest at this stage. If a non-farming sibling has their heart set on living in the farmhouse, that needs resolving now. If there are two farming siblings who can make a living from the farm then housing, diversification, shareholdings etc all need to be agreed.
In our case my sister lives and works on the farm, I left the farm in the late 90’s and have worked away since then. My father has been very open about his will, and has also included a letter of wishes, which is non-binding but explains what he hopes will happen when we take over. This is a really good way to understand exactly what the parents’ concerns are, and what their priorities are. It opens a conversation in a factual way without introducing too much emotion. We have found this really useful, and because we have discussed it already means that there will be no nasty surprises later on.
Get a hold of the cheque book
I used to manage rents on a large number of small arable holdings. Every year I visited a farmer who was about the age of my father. His wife would make us a hearty lunch, we would discuss the rent and settle on a price for the next year. Then I would be taken into the back lounge where this farmer’s father, who was well into his nineties, was sitting by the fire with a blanket across his lap. He would open the drawer in the table next to him, take out the cheque book and, his hand shaking with age, would write out the cheque for next year’s rent. Even in his late 60’s, the farmer I negotiated with still didn’t have full control of the business!
Open all areas
Once you have committed your future, your loyalty must be rewarded with the business being fully opened up to you. That is not to say that the farming parents should be expected to hand over all decision-making, but every aspect of the business should be open to the younger generation.
Again, we have been lucky. Dad has handed over the bookkeeping to my sister, and we are all three involved in the annual discussions with our accountant and business adviser. My sister and I also manage the planning and marketing of the barn conversions. This has allowed him to step back into semi-retirement, and for us to step in to actively making decisions about the business.
Member experience of succession
I was lucky enough to discuss succession with AF Member Jeremy Oatey recently. Jeremy and his wife Sarah own and operate Agricola Growers Limited in Cornwall, a specialist farming company which provides a complete farm management service, and HF Produce Limited which preps and packs vegetables for the catering trade.
The Oateys are just starting along the process of preparing for succession, and have four children, two are in the business and two are not involved. “We have taken professional advice early, and are including all four children in our discussions. The aim is to secure the assets and divide them so that all parties are happy, but also so that there are no surprises when the time comes for the assets to be shared.”
There is a lot of advice on succession planning, and the checklist on this webpage from Teeslaw is very good if you are feeling a bit overwhelmed by the options and need some help to determine what you want to achieve.
AF does not recommend any particular law firm. We do recommend that, once important conversations have happened, appropriate legal advice is taken, and matters relating to power of attorney, a partnership agreement, trusts, tax and inheritance are agreed and resolved in binding documents.
The last thing any of us want is to keep lawyers rich whilst losing our farms to pay their fees.