Posted by: Kylie Wilson
What are Estate and Succession Planning?
An estate plan is essentially a plan about a person’s ‘estate’ (property and assets). A succession plan is an estate plan, which includes plans for succession (our ‘successors’ are those who ‘succeed’ to our estate). Both types of plan can be an extension of the business plan.Proper succession planning will give the next generation the opportunity to succeed to a viable and financially successful family farm or business. Without it, the family farm and family unity often do not survive the succession. This is usually the result of three major factors: the financial overburdening of the farm; advice unrealistic expectations of family members; and a lack of appropriate expert advice.
Part of the reason for poor estate and succession planning is poor communication. Older generation members tend not to discuss their plans with other family members. Younger generation members are often left guessing what the future may hold. Many stay on the farm in the mistaken belief that there will be a sound economic future, when in fact the farm cannot cope economically with all that is asked of it.
Why isn't enough to make a Will?
A Will covers only the event of death and does not come into operation until death. On its own, it provides for no plan until death. An estate and succession plan needs to have immediate operation.Factors to be Taken into Account
Economic Viability
Economic viability is really a matter of affordability. It starts with the question, ‘Can I afford to do all the things I would like to do?’ It will be very important for parents to prioritise what they see as their opportunities and obligations. They will want, for example, to provide for the security of their own future lives, to provide an economic opportunity for the son or daughter on the land, and then to make provision out of their estates for the family. Sometimes not all of these can be achieved to the extent that they would like, and they need to be able to prioritise them. Generally the highest priority is the parents’ own financial security.Asset Protection
Our society is becoming increasingly litigious. If the business is carried on in the same name as the assets are held, then all of the assets will be ‘at risk’ if there is a liability action.Use of Structures
To cope with all the likely factors and events, it may be necessary to create different structures, such as companies, discretionary trusts and self-managed superannuation funds. However, the use of these structures does complicate the estate plan. Where these structures are purely tax-driven and succession is overlooked, greater difficulties can occur, leaving fertile ground for dispute in the next generation. Many advisers overlook the fact that the assets of a discretionary (“family”) trust or Superannuation Fund cannot always be left by a Will.Tax
The 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 taking the 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 factors and events which must be planned for.How to Get Started
There can be no blueprint for succession or estate plans. Each person’s estate and succession plan will be different, depending on a range of factors, such as the size and viability of the present farming operation; the number of family members and their needs, hopes and desires; and a range of philosophical decisions.Getting started is sometimes the most difficult part of succession and estate planning. It all starts with establishing priorities and finding the right professional advisers who have appropriate experience.
The cost of proper succession and estate planning can be substantial. However, while the cost of ‘getting it right’ may be substantial, it is certainly much less than the cost of ‘getting it wrong’.
