The key to protecting farming or rural business assets after death is to plan early and create a modern integrated estate plan. That's the advice of Mellor Olsson Senior Associate Siobhan Dawe, who said planning for the transition of a farming business after death can be a complex process.
"As a farmer, your land is more than your livelihood, it's your legacy", Ms Dawe said. "There is often a long, multi-generational family history attached to the land and business in question that can bring a sense of expectation and entitlement from the next generation. "Juggling the needs and wants of the retiring generation with those of the new farmers and their partners can be difficult." To protect the family business and avoid the horror stories of farming families being torn apart when the farm owner dies, Ms Dawe said it is essential to understand the nature of the farming assets and their ownership.
"Farmers can then establish a plan for a smooth transition whilst protecting the land and business from potential disputes," she said. "A lack of planning, without open family discussion, can leave your estate open to a challenge or claim from family members after your death." According to Ms Dawe, in South Australia currently a person may contest a will under the Inheritance (Family Provision) Act 1972 (SA). Under the Act a person can challenge the will if they are an eligible person, and they believe they have been left without adequate provision for their proper maintenance, education, and advancement in life. There is often an expectation that family assets will be divided equally.
"The significant increase in land value in recent years has made perceived equality in succession planning more complicated - if you break up the farm to give each child a share can they each still run a viable business?" Ms Dawe said. "And what about the off-farm children who will more than likely feel entitled to a share of the farmland bounty, not to mention what happens if one of your children gets divorced."
"Your will does not preclude someone from challenging that will and trying to claim some or all of the estate." Ms Dawe said creating and maintaining a modern estate plan is essential and preventative maintenance is the key. "There are many variables that will determine how successful a claim against your estate plan will be, but it pays to be mindful of how open you leave the door in the first place," she said.
"Any eligible person who can demonstrate they have been left 'without adequate provision for their proper maintenance, education or advance in life' can be successful in an inheritance claim." She said unfortunately there is no way to completely prevent someone from making an inheritance claim against an estate, but here are strategies that can significantly minimise the risk."
"One option is to transfer certain farming assets to y our intended beneficiaries before your death, but careful consideration should be given to any adverse consequences in connection with such transfer, both personally and financially," Ms Dawe said. "Another option may be to restructure the ownership of certain farming assets into trust or another entity".
Ms Dawe said the first step is to ensure a will is accurately and proficiently prepared by a professional who can also provide tailored advice. For more information, phone 08 8414 3555 or visit: www.molwayers.com.au.
This article was published in The Stock Journal on 25 April, 2024.