Protecting a Family Legacy: The Importance of Succession Planning for Generational Farms

By Jaye Mankelow

Imagine a family-owned cattle farm, passed down through generations. This land, this business, isn’t just an asset; it’s the very essence of the family’s heritage, built through years of dedication and hard work.

Now, as the current generation prepares for retirement, they dream of the farm staying within the family, envisioning their children taking over and continuing the legacy. Yet beneath the surface, there are layers of unspoken wishes, assumptions, and challenges that could jeopardise the future of this cherished business.

In this scenario, the parents imagine one child taking on daily farm operations, while the other, who has pursued a career elsewhere, would hold a minority stake. They want the farm to be shielded from external risks and to pass down the assets in a way that minimises tax impacts on the next generation. However, with no formal discussions or planning in place, they risk setting up their children for a future riddled with uncertainties, financial strain, and, potentially, family conflicts.

These complexities are common. 

At Aspira, we often meet families in this position, where unspoken hopes and unplanned expectations create confusion and vulnerability. Without a comprehensive succession plan, the legacy of a family farm can be unintentionally compromised, leading to asset loss, strained family relationships, and a potential loss of the business’s goodwill.

The Risks of Avoiding Succession Conversations

Many families believe that, when the time comes, the farm’s future will simply “fall into place,” with each family member naturally fulfilling their role. However, this approach often leaves important details to chance, creating assumptions that could unravel when the next generation steps in. Questions linger beneath the surface: Are the children even interested in taking on the farm? Do they have the skills and resources needed to manage it? And do the parents’ wishes align with the children’s own vision for their roles?

When families avoid these critical conversations, they may not realise the risk of:

• Loss of Asset Value: Without a structured transfer of ownership, families can face significant tax burdens or legal complications, reducing the value of assets over time.
• Family Disputes: Differences in interest, commitment, or expertise among family members can lead to misunderstandings or conflicts, especially if roles and expectations are not clearly defined.
• Goodwill Erosion: Assumptions about future roles or control can damage relationships and the trust that binds family members together, ultimately weakening the business’s foundation.

Strategies for Preserving Value and Protecting Family Assets

To address these common challenges, early planning and structured conversations are essential. When families like those in this example work with advisers, they can begin building a roadmap that aligns with each family member’s interests, prepares the next generation for success, and protects the farm’s legacy. Here’s how:

• Clear Communication and Alignment: Early, open discussions are the foundation of successful succession planning. By gathering family members to discuss each person’s vision, responsibilities, and role, assumptions can be clarified, and realistic expectations set.
• Defining Roles and Responsibilities: A succession plan that outlines who will handle day-to-day operations, financial decisions, and strategic planning provides each family member with clear responsibilities. For example, if one sibling intends to take over management, their role should be clearly defined, with a plan to provide any necessary training or mentoring.
• Asset Protection Through Trusts: Establishing asset-holding entities, such as family trusts, helps protect core assets like the farm’s land from operational risks. By holding valuable assets in a trust, families shield the farm from potential legal claims, creditors, or other liabilities, ensuring its value remains intact for future generations.

The Role of Testamentary Trusts in Estate Planning

For families with complex estates, testamentary trusts offer unique benefits in terms of asset protection and tax efficiency. A testamentary trust, created through a will, allows assets to be passed down with clear terms for distribution, protecting both the assets and the family members’ interests. This type of trust provides flexibility, allowing income to be streamed to different beneficiaries based on their tax positions, reducing the family’s overall tax burden.

Example: In scenarios like our fictional farm family, testamentary trusts can be used to transfer ownership of the farm while setting clear terms for each family member’s role. One sibling may have a controlling interest with operational responsibilities, while another has a financial stake without the obligation of management. The trust ensures all family members benefit, with terms that respect each person’s contribution and preferences.

Tax-Efficient Transfers and Reducing Financial Strain

A primary consideration in any succession plan is tax efficiency. Without proper planning, significant tax liabilities can arise, reducing the farm’s value and putting undue financial pressure on the family. Key strategies for managing tax efficiency include:

• Capital Gains Tax (CGT) Concessions: Certain CGT concessions are available to small business owners, potentially reducing the tax burden on asset transfers. In primary production settings, where the land’s value may have appreciated significantly, utilising these concessions ensures the family retains more wealth.
• Gifting and Phased Transfers: By gradually gifting assets or transferring ownership over several years, families can reduce tax impacts while maintaining control and stability. This phased approach allows the older generation to mentor the next without a sudden shift in responsibility.

Example: In cases similar to our example, a phased asset transfer allows the family to reduce estate size, managing tax implications gradually rather than creating a large liability at once, preserving cash flow for reinvestment.

Preparing the Next Generation: Training and Mentorship

For a family business to succeed, the next generation must be equipped with the skills and knowledge required for sustainable operations. Part of a successful succession plan involves developing the leadership capacity of incoming family members. Here are a few steps commonly implemented:

• Mentorship from the Current Generation: As the older generation steps back, mentoring ensures that the next generation has support. Working alongside a parent or experienced family member prepares the new leaders for the complexities of running a farm.
• Formalised Training Programs: Families often integrate formal training to provide critical skills. This can include farm management, financial literacy, and strategic planning, empowering future leaders with the confidence and expertise needed to manage the farm successfully.

Avoiding Pitfalls and Building a Lasting Legacy

A clear, structured succession plan avoids the common pitfalls of inheritance disputes, financial strain, and misaligned interests. By addressing these issues early on, families can ensure that the farm’s value and legacy are preserved, reducing the risk of conflicts or misunderstandings in the future.

In scenarios like our example, strategic planning helped the family align their visions, protect their assets, and manage tax implications, setting up a legacy that not only honours past generations but also supports future growth and stability.

A Legacy Protected by Planning

The example of Evans Cattle illustrates the importance of succession planning for families who value their legacy. By openly discussing roles, setting clear expectations, and establishing asset protection measures, families can ensure that their legacy endures, supporting future generations without jeopardising the family’s hard-earned wealth.

While the Evans family is fictional, their story reflects the realities that many primary production families face. At Aspira, we specialise in helping families create customised succession plans that address these complex needs, ensuring a stable and prosperous future. Contact us to discuss how we can support your family in securing its legacy.


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