Continued from last month: Transferring ownership
Transferring ownership
This can be a vexed question. Given that the son can’t afford to buy the farm from his parents, a reasonable outcome is that he is willed the farm.
That means he has certainty about receiving farm ownership when his parents die. However, for a 32 year old son with 55 year old parents, 20–30 years may pass before he realizes legal ownership.
This is a long time to wait, and there are examples of families in which the contents of wills are not clearly known, and this can create uncertainty for a son and his family.
Options
One option is for the son to be given joint ownership of an asset—an existing block, or the next block the business purchases.
Another option is to separate an asset-owning entity from the income-producing business.
Ownership of the assets can reside in one company owned by the parents, whilst the son can be a joint director and owner of a separate entity that forms the income-producing business.
Each year, that business pays a rental to the parents’ asset-owning business which, in due course, becomes part of their living expense income in retirement.
Other succession and estate planning issues
My earlier comments suggest that the parents’ wills can offer certainty to a son that he will indeed inherit the farm. However, it is still possible for issues to arise.
Transfer of ownership realistically needs to recognize that marital and intra-family relationships can fail. Therefore, parents may reasonably retain outright ownership of assets although ensuring their wills allow transfer.
Similarly, sons should accept the reasonable—if unspoken—view that ownership may not transfer, given that an estranged daughter-in-law might be awarded a settlement that requires the sale of assets.
Following on from that issue, when it has been recognized that a son will indeed succeed to the farm it then becomes important that he has his own will, especially if he has legal ownership over business assets. It then becomes apparent that some thought must be given as to who will be his beneficiaries, and the position of the business in the event of his death.
The potential permutations and combinations depend on individual families.
Using an external advisor
External advisors/consultants/accountants/lawyers cost money, and one reason they are not used readily by growers is that any payment for their services may be perceived as money going out of the business for little return.
However, assuming the external advisor is an effective professional, it seems foolish not to use someone who can act as an independent sounding board.
Given the typical expense structure of an orchard, the cost of an adviser is usually relatively minor and there are many issues to manage.
Concluding remarks
Money can be an emotive subject at the best of times.
Considering money over a long period of time can also be a complex issue. Succession planning is about human relationships and these provide a dynamic and challenging platform for business and personal planning.
A good financial planner can assist family members to adopt tax-effective, long-term wealth strategies.
The business being passed on to the next generation must be viable—profits are required to meet many needs and expectations.
The engagement of effective succession and estate planning advisers can assist a family to maintain relationships and conduct objective, honest discussions about its future.
See this article in Tree Fruit January 2014
