Succession planning – a must do task for almost every farmer – was the main discussion topic at a recent meeting of the Kintyre monitor farm, one of the network of monitor farms led by Quality Meat Scotland (QMS).
At a previous meeting, monitor farmer Duncan Macalister, who owns the 1,730 acre (700 has) Glenbarr Farms, north of Campbeltown, told the group that when he returned home in 1993 to take over the family farm, things were “complicated.”
Mr Macalister and wife Fiona’s four children are now all in their teens. He told the community group: “I’m determined to make the handing over process a lot smoother and simpler for our kids, than it was for me and my siblings.”
Chartered Accountant Peter Innes (pictured), who is based in the Stirling office of Johnston Carmichael, outlined the mechanics of the succession planning process, along with a small selection of the tax efficient options available to farmers, to help ensure assets and the farming business are passed to following generations, as the head of the business may wish.
“Farmers are usually fully occupied with the challenges of here and now, resulting in them pushing less urgent matters, like succession and inheritance tax planning, to one side. Yet failure to deal with these matters, particularly dying intestate (without a will), could ultimately force the farm or business to be sold.”
Mr Innes, who still helps on the family dairy farm at Meikle Urchany, near Cawdor, told the group: “Over 70% of family businesses want to keep ownership in family hands to be passed down the generations. But in reality only 33% make it to the second generation and only 9% to the third, with the issues of succession and family relationships perceived to be the main reasons why family businesses fail.
“Every farm business is unique, with its own personalities, relationships and objectives. Consequently when deciding on a succession plan, there will be numerous considerations and options, often with legal and tax implications, so at the outset, involve your accountant and other professional advisers.”
Mr Innes emphasised the benefit of a joined up approach between advisers, with frank and open communication between family members.
“To enable family members to make informed decisions as to what their future paths will be, get everybody involved round the kitchen table to firmly establish how interests will be divided. This will help ensure the business will continue as you hope.
“Often the first consideration for the senior generation is whether or not they can afford to retire, to do this they will need accommodation and an income. If there is an alternative enterprise on the farm, for example wind turbines, this enterprise could be run through a separate limited company to provide an income for retirees. This option could also be used to provide an income for non-farming siblings.”
Mr Innes listed a selection of wealth and succession planning options, including a joint life second death insurance policy, written in trust, which does not form part of the farmer’s estate on death. This can provide a lump sum for children who will not be part of the future farming business and the cost could be met by the farming business.
“Once decisions are made and agreed, with professional guidance, commit your wishes to paper. It’s worth re-visiting this document periodically, along with your will, to ensure it continues to fulfil your intentions.”
Mr Innes also pointed out potential consequences on the breakdown of a marriage and the implications that this could have on the farming business going forward. “In a farming situation certain assets can be regarded as matrimonial property, so this is again an area requiring consideration to ensure continuity of the farming business.”
Mr Innes urged the group to spend time dealing with succession and inheritance tax planning, “the sooner the better,” and reminded the group of the three stages of wealth - Making it. Keeping it. Passing it on.
“When it comes to passing it on, doing nothing is the least logical, most costly and most destructive of all options – yet is by far the most popular!” he warned.
The next Kintyre monitor farm meeting will be towards the end of May.
For further information, please contact either of the joint facilitators: Alan Boulton, Telephone: 01397 708891, email: email@example.com or Linda McLean, Telephone: 01586 820226, email: firstname.lastname@example.org
For general information on monitor farms, plus detailed reports of meetings, visit: www.qmscotland.co.uk/monitorfarms