Farms are high value assets, built on lifetimes of hoping, coping and plain old hard work. As with any complex topic it is not surprising that inheritance is a difficult conversation for some farming families.
A distressing family stoush over the family farm finished up in the NSW Court of Appeal, recently, which acts as a sad reminder that not all families have grappled with planning and effective communication to draw the best out of a farm asset as it passes to younger generations.
And, while a new grants scheme in Queensland that provides rebates of up to 50 per cent of the cost of getting advice on the transfer of farming property between generations is a good start to help farming families work through these issues, so much more needs to be done.
When he left school Duncan worked on his parent’s farm for many years. He left because he was frustrated that he was doing all the work for low pay on property he didn’t own. The farm was run on a number of properties owned by a family trust. A few years later there was a bust up and the family split into two camps. Gordon and his son Duncan were on one side and Gordon’s ex-wife (Duncan’s mother) and Duncan’s siblings on the other side.
After Family Court proceedings a legal agreement was reached splitting up the properties between them.
Gordon then made a will and told Duncan that he would inherit Gordon’s farm because the others had gotten their fair share. Duncan went back and worked on Gordon’s farm, in the expectation it would be his one day.
However, over time, Gordon reconciled with his other children, and, without telling Duncan, he changed his will. When he died, his will left everything to his ex-wife to divide among his three children.
Duncan took action in court and was awarded a sum that the judge decided reflected the value of the work he had contributed to the farm.
Duncan appealed this decision and was finally awarded the property and an associated water licence last month.
Lesson to be learned
The legal battle in this case lasted years and the costs are more than financial and will be long lasting. It’s all too human to want to please everyone in a family. It can seem particularly important as a lifetime draws to a close.
Unfortunately it is a demonstration of the havoc caused by haste, a lack of planning and the absence of the vital ingredient that makes successful intergenerational transfer work, communication.
It is an example of when inheritance equally distributed between the three children is prone to produce conflict at worst, and, at best, a situation where one sibling has to buy out the others and work to recover the farm’s viability (and manage the debt) all on their own.
What are the alternatives?
Perhaps a better way of approaching the situation is to think about ways of changing the ownership structure of the farm over time to develop business skills in family members. It is important to get them talking about what their expectations and are and how the farm can be made more productive.
In this way, the expectations of all family members are worked through together, rather than in a vacuum that causes people to follow their own strategies that are likely to conflict with the hopes of other family members.
Perhaps the ownership structure of the family farm could be arranged so the land is leased to separate business structures owned by siblings for crops, cattle or even something as innovative as leasing for solar panels that sell electricity to the national grid.
Agreements might take into account the value of educational qualifications the farm paid for that some members of the family have used to secure careers away from the farm, the years of hard work family members like Duncan devote to farm work, incorporate performance targets, deal with income to shareholders, and, decide the value of buy outs if a family member wants to leave.
Hard conversations have to be had to secure a clear path for the future. You owe it to your family to be up front with them so that they can make informed decisions how they build a life for themselves. No one is owed a free ride and no one deserves to labour under false hope.
- Scott Freidman is a Director with the law firm Harris Freidman.