If succession planning were a cake…
A will would be your flour. Plain or wholemeal, no matter, so long as you have a cup or two to start with. Without a will you’re at the mercy of the Administration Act 1969: it dictates who gets what and how much. Whilst the provisions of the Act are sensible – a widower receives his wife’s property, for instance – they are not necessarily reflective of the best outcome for your family and its farm or business. Without a will, the legal process to be followed after you lose a loved one also tends to be more expensive, and can be more complicated than it needs to be.
Baking powder, an essential
A good will should cover off: who is in charge of your estate (your executor); who will look after your children (if they are under age); and who is to receive which of your assets. While this sounds straightforward enough, these appointments and the treatment of your legacies need to be worded accurately and appropriately to ensure your wishes are met. Don’t buy a will off the internet – it may fail to rise.
Keep it sweet Sugar
As with carbohydrates, I have a love/hate relationship with family trusts (or, more specifically, the endemic way in which Kiwis employ them). Admittedly, not all sugar is bad: if you’re after a treat for the diabetics, you’d best steer clear, but if you want to bake a gateau, you’re going to need some. Settling assets upon a trust can result in complexity, administrative costs, and perceived (and actual) loss of control. However a trust can also provide a wonderful succession planning tool in the right circumstances: trusts can offer asset protection against creditors, a vehicle for collaboration between family members and advisors, and sustained ownership in the face of a bereavement. Crucially, a trust can also help to secure your family capital against relationship property claims that your children could be vulnerable to in the future, promoting protection of family capital for succeeding generations.
If you do have a family trust, then you’ll definitely be wanting some eggs to make sure everything sticks together just right. A Memorandum of Wishes gives your surviving trustees directions as to how the trust is to be operated after you pass away. It should set out who are to become trustees, and how assets are to be dealt with. For example: is the farm to continue in operation or is it to be sold and the proceeds distributed. If the former is the case, who is to run the farm – and how should any non-farming children be tended to?
Greasing the pan
Discussing your intentions with your children – and where appropriate other family members – is an important part of your succession planning. Are your executor and/or your intended trustees happy to take on that responsibility? Are the intended guardians of your children agreeable – and do they understand your wishes for the care of your children? If your children are adults – or approaching that age – have they a desire to begin or continue farming? And if not do they have other business aspirations you want to assist them with?
A Deed of Family Arrangement may be just the baking paper you are after – a document which records agreement among family members. These can be used to set out the family’s plan going forward and are signed by all relevant parties, ensuring everyone is aware of and agrees to the programme. They are also used in the settlement of disagreements following the death of a family member, but the aim is – of course – to avoid that scenario through adequate planning and disclosure.
You’ll need some good utensils – a sieve, a whisk. Your accountant will perform the vital role of sifting through the books and setting out your fiscal position. They’ll also proffer advice as to taxation implications arising from your structuring and anticipated succession plan. Bankers, farm advisors, and succession planning mentors are other crucial members of the team.
Meanwhile your lawyer wears the chef’s hat, and will fold together your wishes and knowledge, the contributions of your advisors, and their own legal expertise. In preparing your succession plan we need to gain a sound understanding of your family and its vision for its future: your taste in cake will determine the ingredients we use. In other words – if we can forget the carefully sustained analogy for a moment – the pivotal thing is that we understand what you want to achieve for your family. It’s important that we all work in conjunction with each other to ensure that everyone is on the same page (and the oven is the right temperature).
Let it cool
Documenting your succession plan brings with it peace of mind: your house is in order. But don’t forget to review things periodically. As time passes, and your family grows and changes, tastes change too.