Maria Connolly Solicitor

Transferring the family farm

One of the most common transactions in a rural legal practise is that of the transfer of the family farm. Historically farms passed to the next in line, usually the eldest son, on the death of the farmer with little or no planning. Nowadays it is widely acknowledged that greater emphasis on planning for the handover of the family farm to the next generation is vital to ensuring future viability and sustainability.

The first step that you should take is to make a Will. This ensures that the farm ends up in the correct hands and that your true wishes and intentions are carried out. Very often the making of a will is put on the long finger as people go about their busy daily lives. However this can have detrimental consequences for the future of the assets in the event of a death. Assets are divided among the next of kin in such a way that it is impossible for the farm to be run as unit, particularly if agreement cannot be reached among the beneficiaries.

The contents of a Will will only take effect from the date of death and can be changed as many times and as often as you wish. A Will does not preclude you from gifting the farm during your lifetime and for many farmers nowadays this is the preferred option. The older generation often come to a point in their lives where they no longer have the energy and enthusiasm to keep the business progressing and are happy to step aside in favour of the next generation. Planning for this particular event should not be in the days and weeks prior to the transfer but several years in advance. Retirement / Pension policies should be put in place so that you have a source of income as an alternative to the income from the farm. Transfer of ownership and control of the farm could also be done on a phased basis so that the older generation can mentor the younger generation while they find their feet. This also affords the younger generation a chance to satisfy themselves that farming is their future and the older generation the comfort of knowing that they are making the right decision.

 A Partnership arrangement is another option which could be explored. This allows the younger generation to become involved in the day to day running of the farm without necessarily transferring ownership of the assets. The share of the profits of the partnership can be increased upwards in favour of the younger generation as time goes on and they become more experienced and assume more responsibility. An arrangement such as this could continue for several years until such time as both the older and younger generation are confident and ready for the transfer of the assets.  

 One major concern for the older generation and their legal advisors is their welfare and security after they have retired and have transferred away all of their assets. Having worked on the farm all of their lives they have a right to expect some form of income after they retire. Good advance planning will ensure that steps are taken now to provide and nest egg for the future such as a pension or retirement plan. In the absence of same it may be necessary to draw an income from the farm. Many deeds transferring the farm assets will include a reservation of right of maintenance and support in favour of the older generation. However, while this provides some security for the older generation it may complicate matters for the younger generation if they need to use the assets as collateral for a loan in the future. In circumstances where the family home is transferred with the lands and outbuildings a right of residence should be reserved for the retiring farmer and his / her spouse.Consideration should also be given to retaining ownership of the family home and some of the farm assets in order to provide some security.

 Efficient tax planning is vital when considering a future transfer of assets and also when making a will. Professional advice should be obtained well in advance as it is possible to take steps to reduce or even eliminate the tax burden. The main taxes to be considered are Capital Acquisitions Tax (CAT), Capital Gains Tax(CGT) and Stamp Duty. The current rate of CAT and CGT is 33% and when applied could create an insurmountable debt for both transferor and transferee. However efficient tax planning will ensure that mechanisms can be put in place to ensure that reliefs and exemptions can be availed of.

 In summary the absence of longterm succession planning can have negative consequences for the future of the farm as the older generation struggle to maintain work levels and enthusiasm and the younger generation become disillusioned with the lack of clarity as to their future. Inefficient tax planning could potentially lead to assets having to be sold to simply discharge the tax bills. Timely advice from professional advisors will assist in finding the most suitable succession plan for you and your farm.

 

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