Succession Planning for the Future
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The importance of Succession Planning and how to go about it
No one likes talking about what will happen to their assets once they pass on – in fact, over half of adults in the UK currently don’t have a Will. Somehow, it seems that avoiding the issue means we don’t have to face up to the realities that time moves on. In farming, this avoidance technique creates an even bigger problem. Without proper succession planning, young – and old – farmers could find themselves without a home, a livelihood or means of income. It can cause family rifts and threaten the state of British agriculture altogether.
Succession planning is not as straight forward as writing a will. Many farms have been passed down through generations of farmers and this creates its own can of worms. How do you go about dividing up your family farm fairly between siblings? What if one or all of your children don’t want to continue farming? What if your progeny is already champing at the bit to take on some responsibility and contribute to decisions about the future of the business but is being held back because their name is not on the deeds?
Succession planning allows you to address all of these questions and help your farming business to grow. It takes away uncertainties for the younger generation and gives something to build on while providing security for the older generation. However, according to research taken from more than 700 farming businesses in the Let’s Talk Succession campaign, less than half have a succession plan in place. And without succession planning in place, the future of these farms remains uncertain.
How to go about succession planning
- Talk: often the most difficult thing about succession planning is starting the conversation. However, this needs to happen sooner rather than later. Invite all those who might be affected to hear their thoughts on the future of the family farm. It can help to enlist an independent adviser who can take the emotion out of the process.
- Plan: passing the business and assets on to the right person is essential. A quick checklist includes: how the assets of the farm are owned; who occupies the land and buildings; what each family member wants or needs from the farm; the long term direction of the farm and business; what role each family member will play. You should aim to get an up to date farm valuation of all property and business assets from an RICS Registered Valuer.
- Teach: it is the responsibility of the older generation to teach and mentor the younger generation, to pass on the skills and knowledge they might need to run a successful business, but also allowing the ambitions and enthusiasm of the younger generation to flourish. This can be tricky in a family environment, so a phased plan could be introduced which would enable a smooth transfer of skills.
- Protect: This is your home, your livelihood, it’s been in your family for generations – of course you want to protect it. All parties involved in the succession planning should have valid wills and a partnership agreement drawn up. When considering the future of your assets, it’s important to consider what might happen if your son or daughter were to divorce. In these instances, a pre-nuptial agreement can help to protect the family business. Also make sure you understand any tax implications – seek Inheritance Tax (IHT) and also Capital Gains Tax (CGT) planning advice.
- Retire: pensions are a part of succession planning. They provide a source of income for the older generation which means they may need to rely less on the business in old age. The younger generation may also be able to use their pension funds to buy farm land or commercial property from the older generation, using a Self-Invested Personal Pension (SIPP)as part of the family’s wider succession plan.
- Grow: to continue to be profitable, your business needs to grow. What is the long-term plan and vision for your farm? What are your goals and how might you achieve them? Banks can become nervous about the prospects for a farm business if it is not seen to be changing with the times. In farming, this might mean diversifying – into holiday rentals, haulage businesses or free range eggs for example. That’s why it’s so important to talk about and plan for the future of the business now, with everyone who might be involved in achieving those ambitions.