A large proportion of farms still don't have plans in place, but there are clear advantages to creating, and sticking to, a plan for succession.
1.Outline responsibilities and manage expectations
Succession planning opens up important discussions for the family. It can clarify each party’s expectations for the business so that these are managed effectively, and those involved can make informed decisions. The better each individual knows where they stand, the greater the chance of long-term business success
2. Maximise opportunities
Succession planning gives you time to evaluate the farm’s current position and fully consider its potential. Any changes or new developments externally and within the business become part of an ongoing family discussion, allowing for safer and more considered decisions. Whether it be utilising the land for new business opportunities such as renewable energy, dividing ownership between the family, or making the business and ownership structure tax efficient, succession planning sets out clear goals and an agreed vision for the farm. It is therefore easier to highlight opportunities that can add value to the business.
3. Secure the future of the farm
'By failing to prepare, you are preparing to fail' – Benjamin Franklin's famous quote remains relevant. Various pressures including an ageing workforce and requirements from lenders, mean there is even greater to sustain family farming businesses for the future of the entire sector. Farmers need to outline a clear and thorough succession plan and revisit it frequently over the years, allowing adequate time to handover the business while keeping the farm buoyant.
4. Move with the changing times
It is very rare that a family business will stay the same throughout the generations. Advancements in technology and changes within the political and financial landscape mean that we have to adapt in order to succeed. Agriculture has seen lots of changes over the years, and with issues such as Brexit on the horizon, it’s never been more important to put plans in place for the future of your business.
5. Adapt to complicated family structures
Complicated and less traditional family structures in the 21st century have resulted in a shift in the way many people run their family business. A succession plan is an ongoing process that can last for many years, and roles and responsibilities within the business may change over time as a result of marriage, divorce or death. Succession planning allows you to give absolute clarity on everyone’s involvement, prepare for different eventualities, and set out in advance what the farm needs. You can also make changes along the way to align the succession plan and protect the farm. This can be done in a number of ways with careful consideration of the business arrangements combined with the use of Wills, trusts and pre- and post-nuptial agreements.
6. Tax relief and tax efficiency
Succession planning plays a key role in tax efficiency. In particular, it can help optimise the tax position so that any tax payable when handing the farm down to the next generation is minimised, thereby helping keep the farm together. Succession planning not only forecasts tax bills, but provides clarity on where you can benefit from tax relief. One example of this is that for inheritance tax relief purposes, you need to make it absolutely clear how the farm’s assets are owned. Structuring your business as an agricultural partnership for example, with a clear written partnership agreement supported by well-drafted business accounts, can help to maximise the availability of inheritance tax reliefs. Be aware that tax in the agricultural industry is in flux, so it’s important to ensure you are up-to-date on the latest regulations.
7. Avoid potential disputes
A succession plan helps make it clear which assets are owned by who, and sets out responsibilities and manages expectations of the family members involved in the business, and those who aren’t. While succession planning makes financial sense and is the best way to secure the farm's future, it also prevents potential disputes between parties, whether they're emotionally or financially invested. As an ongoing dialogue amongst family members, any disagreements or questions can be dealt with during the planning process, reducing the risk of costly disputes in the future.
When documenting your succession plan, it is important to seek legal advice to ensure you are taking the right steps to secure your farm's future. To discuss your next steps and how we can help, please get in touch with Mike Westbrook.
