Legal advice

Family succession in farming and viticulture.

Succession planning is essential in ensuring the future success of the farming or viticulture business and its continued presence in a family through generations. Despite its importance, recent surveys show that less than 50% of farming families have a written succession plan.

A written succession plan can ensure the long term goals of the business are clearly, strategically and logically discussed between family members. It can also ensure that familial differences, in relation to the future of the business, are considered and agreed. It allows open and honest discussions about succession planning from the outset so every member of the family can voice their desired involvement. It is not unusual for a farming business to support family members who no longer work in the business and it is vital that this arrangement is not at odds with the profitability or morale of the current employees and partners. Inheritance is also a key issue for family businesses, which separates them from other trading businesses.

There are various ways succession planning can be structured. The most common approaches are explained below.

Testamentary arrangements

A Will ensures that, in the event of the death of the owner, the farm passes to the right individual(s) who will carry on the business. Without a Will, the estate of the deceased owner will likely, but not definitely, pass equally to the owner’s children under intestacy rules. In some circumstances, this will not be an issue as all the children may wish to take part in the business. Bear in mind that, in the event of a dispute over the future of the farm, a sale may be forced to distribute the profits equally and end the dispute. This means that the farm will no longer remain in the family.

The Will can also contain more specific provisions to govern who may inherit the farm if it is sold within a certain period, how profits are to be divided and how the land is to be held. Not everything can be controlled through the Will but it is an important part of succession planning.

A partnership agreement

Partnership agreements, or a shareholders’ agreement in a company structure, are crucial to succession planning. These allow the family to agree in advance on issues such as retirement, profit share, land ownership, business diversification voting and dispute resolution. It can also determine future ownership plans and enable the partners or directors to move towards those in a tax efficient and agreed manner. This can ensure the success of the business as it can allow the owners, who have retirement in sight, to gradually pass control to their family members who learn to take control of the reins under the owner’s guidance until they are ready to run the business.

Incorporation

The incorporation of the business is regarded as a very flexible approach as it allows the suitable family members to hold an interest in the business by holding shares. The shareholders will get an income if and when the directors see fit to do so. It can also allow for equal and fair treatment of all the family members, even those who do not want any involvement in the business. Those who want to run the farm can be a director giving them responsibility for the business direction and running.

This method of succession planning is also useful where none of the family members wish to have a role in the farm but the owners still wish for them to receive an income. A company offers an opportunity for efficient tax planning.

Succession planning can feel like opening a can of worms but it is vital to address issues in advance to save the business and financially plan for the future. With guidance from your lawyer and accountant, these matters can be considered and resolved, giving you peace of mind and a secure future.

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