With the rise in litigation, good succession planning is key to helping families with businesses understand where they stand after the owner dies.
Does the business remain in the family? How many children, if any, want to be involved? How do the other siblings, who may not be involved, inherit a fair share of the family’s wealth? Early planning and open and honest communication helps smooth the process, potentially avoiding costly litigation and ensuring that everyone inherits their fair share – tax efficiently.
We have been working with a farming family for some years now to help them steer through the complications of inter-generational succession planning, ownership and inheritance.
The farm is owned by the parents who are now in their 70s. They have three children each of whom have, over the years, taken on different roles within the overall business. However the decision needed to be made about who would ultimately take on the core business and how that and other assets would pass to the children. How should each child’s contribution over the years be factored in, what were their long terms goals and how could the assets be split fairly?
The farmer realised early on that one of his daughters wanted to run the farm on a day-to-day basis, but his other children were less interested and had taken on other roles within the business, developing some of the properties on the farm.
Understanding that this could cause problems with inheritance down the line, the family put in place a letter of understanding setting out how assets would be given a value and shared depending on various factors which they had discussed and agreed. This worked well in that everyone agreed and understood the basis on which they would inherit assets in the future.
This combined as well with putting a robust business structure in place around the farming operations, allowing for the transition of ownership of the core farming assets to commence during the parents’ lifetimes in a tax-efficient way. This provided a mechanism for a smooth transition of both ownership and control of the business between the generations.
In planning early, and combining the above strategy with carefully drafted Wills, the family have a clear strategy that is in best interests of the long-term running of the farming business, but which also strives to be fair to all.
For further information on succession planning, contact Mike Westbrook: mwestbrook@thrings.com