Farmers should have a business plan. Part of the business plan involves estate and succession planning.
An estate plan is essentially a plan about a person’s estate (property and assets). An estate plan will involve asset identification, risk identification, forming an advisory team and then planning, designing and implementing.
Asset protection also forms part of estate planning. As society becomes increasingly litigious, if a business or rural enterprise is carried on in the same name as that in which the assets are held, then all of the assets will be “at risk” if there is a liability arising. Asset protection is ensuring the assets are “off-risk”.
A succession plan is an estate plan which includes plans for succession i.e. who is to take over the estate on death.
Estate planning is not just about having a will. It involves the review and management of personal, family and business affairs during lifetime as well as evolving a strategy to deal with assets after death. This includes the legal instruments and structures put in place to transfer assets in the event of death.
Rural succession planning involves having a living and dynamic plan which can change with circumstances.
Primary producing parents facing succession planning difficulties frequently find it confusing because there appear to be so many issues which confront them and it is often difficult to separate those issues much less prioritise them.
There are, however, a simple set of clear priorities: –
- The need of parents for economic, financial stability and security must always be paramount and must not be compromised.
- A viable business opportunity for the children wishing to come onto the property must be available.
- Knowing what the assets and liabilities are that are within the family’s reach.
- A reasonable assessment of future opportunities.
- As early as possible, parents need to start building up off-farm assets for themselves.
Having sufficient off-farm assets to support parents in retirement increases the likelihood of being able to provide the next generation with a viable business opportunity on the farm.
A rural succession plan should include structures which minimise the effect of income tax, capital gains tax and stamp duty, not only on a year by year basis, but also on a “transactional” basis when children are brought into ownership of part or all of the farming entities. Tax minimisation involves taking steps which the legislation itself encourages or legitimately allows to minimise the effect of taxation.
Planning for tax minimisation should be kept in perspective with the whole range of rural succession factors and events which must be planned for. It is for this reason essential that your accountants and financial advisers (if any) should be part of the discussion as well as part of the solution.
Government appreciates the need for farmers to look to succession planning. There are two main components to this: –
1. Farming Transfer Duty Concessions
Under previous legislation transfer duty concessions only applied to the transfer of farmland (and associated livestock, plant and equipment as well as certain other assets) between family members where the transfer was by way of a gift.
From 1 July 2016 the Duties and Other Legislation Amendment Bill 2016 (Qld) removed the requirement that family fund transfers be by way of a gift for the relevant concessions to apply.
Under the current legislation, the concession is available for any transfer of “business property” provided that:
- The party transferring is a “defined relative” of the party receiving. “Defined relative” is a term which includes but is not limited to spouses, parents, grandparents and children; and
- The party receiving acquires the business property in his or her personal capacity; and
- The party transferring the property carried on the business for which the property is used; and
- The person receiving intends to carry on the business.
In short, the transfer of the family farm from one family member to another is now exempt from transfer duty even where that transfer is not by way of gift. In addition, the concession also applies to any residential land provided it is adjacent to the land used to carry on the business i.e. the farm.
2. Queensland Government Succession Planning Grants Under the Farm Management Grants’ Scheme
Queensland producers now have access to grants up to $2,500.00 to help tackle family business and succession planning. Producers seeking professional advice in relation to succession planning or a family member wishing to acquire an interest in the family business can apply for a rebate of up to 50% of fees paid for the advice with a maximum of $2,500 per applicant, per financial year.
Now is therefore a good time to consider the way forward with your legal adviser and accountant.