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10 Jun, 2022

Succession – The Importance of Proactive Planning

Proactive planning is on the rise and the best succession plans encompass a lot more than just tax, says ifac’s Declan McEvoy.

Farm succession generally has two key objectives — to secure the future of the farm and provide sustainable income for both the retiring and the next generation.

The starting point in the planning process is identifying the expectations of all stakeholders who will be affected when the farm moves from one generation to the next. Your stakeholders include not just family members but also your employees, your bank, and your business partners.

Retiring generation

It’s important to remember that circumstances change and relationships can break down so your succession plan needs to be carefully thought through. Key questions for the retiring generation to consider include: 

  • When do you plan to retire? 

  • Do you intend to continue to be involved in the business? 

  • How much income will you need to support yourself and your spouse?  

  • What money will you need to take out of the farm?  

  • Where will you live?  

  • What will happen to the farmhouse? 

  • Do you have any other specific requirements regarding your future personal circumstances?  

Successor

To achieve a successful transition, you will need a willing and able successor and an agreed timeframe for succession. Where no suitable successor is available, alternative plans will need to be put in place. Key questions to ask are: 

  • Have you discussed succession with family members and identified a suitable successor? 

  • Is your successor willing to take over? 

  • Have you made plans for fair and equitable treatment of other family members? Have you discussed your plans with family members and documented any promises that have been made? 

  • What is the timeframe for succession? 

  • What skills or knowledge will your successor need to acquire? 

  • Where two generations will be working together on the farm, how will the work be divided and how will income be shared? 

  • Who will be responsible for making decisions about the business? 

  • If there is no suitable or willing successor. have you considered other options such as skipping a generation, a partnership or even selling up?  

Assets

You will need to compile a list of farm, plant, stock and land values along with details of any current and/or planned future developments. You will also need a list of each person’s assets as this will be required for tax planning purposes. 

Viability

A farm that is not viable will not be able to support the retiring and incoming generation. Take a hard look at your business. Ask your accountant to prepare financial projections and check that your business is structured appropriately. Take any necessary steps to improve profitability, including exploring off-farm income sources where appropriate. Where viability difficulties exist, they can lead to family disputes. If this arises, it can be helpful to involve an independent professional with conflict resolution skills. 

Legal documents

It is important that your succession plan reflects relevant provisions in your Will and other legal documents. Points to check include: 

  • Ensure that your succession plan takes into account any existing legal and/or banking considerations such  whether you have a life interest or full ownership of land, charges on land, etc.  

  • Are your Wills up to date? Making a Will is a simple process. Have it drawn up by a solicitor so it is valid and don’t forget to review it from time to time. 

  • Have you considered creating an enduring power of attorney? This is a legal arrangement where you nominate someone you trust to act on your behalf if you become mentally incapacitated. 

  • Have you created a living file to store all the information that the person dealing with your affairs will need?  

Contingency plan 

Your succession plan should include provision for unanticipated events such as divorce, illness, accident, death, disaster. Insurance can help protect you against the financial impact of these risks. It is advisable to obtain independent financial advice when purchasing insurance, life cover and pension products. Finally, remember your succession plan should include a dispute resolution mechanism.

Succession Planning – 10 Key Steps
1. Clarify your goals. 6. Make decisions.
2. Collect and analyse information. 7. Develop and implement your plan.
3. Assess your farm’s viability. 8. Review your plan at least once a year prior to the succession.
4. Explore your family options and identify potential successors.9. Review and update your Will.
5. Liaise with your team of professional advisors and remember to revisit once plan with successor finalised. 10. Ensure that the incoming generation is happy with the p