Estate Planning for Farmers in South Australia

How many horror stories have you heard about farming families getting torn apart when the farm-owner dies?  In my work as a lawyer specialising in estate planning and probate, I’ve heard quite a few.

They often have a common theme – where a relative (typically a younger son) worked for low wages on the family farm for years, with the expectation that the property would be passed on to them after the owner’s death.

There is a sense of expectation & entitlement – of having earned their inheritance – often fuelled by a lack of discussion or planning by the old owner. Unfortunately, this scenario frequently creates significant problems within the family, especially if there is more than one child wishing to benefit from the farm.  Often the farmland and the business it supports are the major assets of the deceased estate.  It can be difficult enough to generate a decent income from the whole – breaking up the farm to give every child a share may mean that the family farming business cannot continue to be viable.

But what about the other children – the ones who moved away from the farm?  Should they not be entitled to a share of the bounty from their parent’s estate?

This is the thorny issue confronting all farming families, and requires careful planning and professional advice for all involved.

The key to farm succession is transparency and honesty. For a well-executed family succession to produce a successful outcome, there are a number of critical considerations, including:

• Careful preparation of a detailed succession plan in concert with a lawyer specialising in estate planning (not just the local “family” lawyer who dabbles in all areas of law. Business succession planning is a specialised subset of estate planning and frequently requires a coordinated approach from a number of different professionals. Specialised legal advice is critical, and accounting and financial planning advice may also be required.  If strong resentments have already emerged within the family in some degree of counselling may also be required in certain cases.

• If you are serious about your farming business surviving through the next-generation then you need to dispassionately review the operational and management skills and strengths of your various family members in order to select a good match with the needs of your business going forward (following your departure).

• Honest and open discussions with all your family members can help to identify problems and offer an opportunity of resolving them before they become catastrophic for your family and your business.  Remaining wilfully blind to the looming problems which your retirement or death will inevitably create for your family & the smooth operation of your farming business almost inevitably ensures that you will leave a terrible legacy of complex problems for your family to attempt to resolve after you’re gone. A lawyer specialising in estate planning (particularly if they are independent from the “family lawyer”), can facilitate a family mediation to arrive at a common plan with honesty, integrity and transparency.  Although this can be a daunting proposition for many families, is likely to bring into the open any simmering tensions, resentments and expectations which would surely manifest after your departure.  Better to deal with them now, while there is still time.

The questions I am asked most by farmers relate to succession planning – generally how best to pass the family farm onto the next generation.  For farmers this involves two separate assets: the land and the business.

Complexities arise in a number of ways.  Often the retiring couple will be asset-rich, but the business might be struggling to provide a good income for both generations. The older generation might wish to de-prioritise further capital investment in order to maximise income, while the younger generation have a vested interest in the farmland not being sold to free-up capital.

Then there is the thorny problem of how to achieve fairness between the children, if not all of them are staying on the farm.

And what happens if one of the children gets divorced – could the ex-spouse lay claim to the farm (or part of it)  – might the farm pass out of the family forever?

If you die without a Will, you are deemed to have died “intestate” and your estate will have to be administered at Court in accordance with an inflexible statutory formula which will determine where your estate will go. This can result in unintended results for some people, perhaps contrary to what they would have wanted.

Many people believe that if they are married and they die without a Will, all their property will automatically go to their surviving spouse. That is frequently NOT the case in Australia.

If you are married, all jointly-owned property will pass by right of survivorship to your spouse.  Matrimonial property (essentially property acquired during the marriage) may go to your spouse, however this may require Court orders to determine & enforce those rights.

However, if you also have one or more children, state law will provide a formula which will direct the share of the separate property (property acquired before marriage or inherited during the marriage) which will go to each of those children. This can be an unintended result if the estate is modest and your surviving spouse needs all the estate-assets to make ends meet.

This is especially dangerous for farming families.

The surviving spouse might well need the entire farming business to operate as a whole in order to make ends meet.  If the farm gets carved up according to the government’s formula, then the surviving spouse could inherit a disaster.

These laws of intestacy vary from time to time and from place to place.  If you die while on holiday in another state, the results could be different than dying at home.

Further, if you die intestate (without a Will), these are some things you CANNOT do:

1. Leave any part of your estate to a friend.
2. Leave any part of your estate to a step-child or foster child which has not been adopted.
3. Provide for a disabled child or other disabled beneficiary so as not to impact the government assistance they might otherwise receive.
4. Provide for a family business to be continued or sold as a going concern.
5. Nominate a guardian for your minor children.
6. Prevent a minor beneficiary from receiving all of his or her inheritance at age 18.
7. Leave any gifts to charity.
8. Disinherit someone who would normally be regarded as your heir.
9. Specify who will receive your personal property such as collectables, jewellery, artwork, coins, etc.
10. Provide a life estate so that someone can live in your home after your death.
11. Provide for the continuing care & accommodation of a pet animal.
12. Designate the ages and the terms under which your children or grandchildren will receive their inheritance.

Under modern laws, it may be possible for a person to have more than one “spouse” for the purposes of probate law.  A “domestic partner”, or “defacto” may potentially be able to validly challenge your estate AFTER you die, and acquire property rights in your deceased estate under intestacy laws which you don’t intend.

I haven’t lived on a farm in over 20 years, but it’s forever in my blood.  Now I’m a city lawyer.  Like my father was, and his father before him. My uncle was one of the oldest living winemakers in McLaren Vale, and his daughter has transitioned into the role of senior winemaker.  My family understands something about heritage & legacy – and about a family’s bond to their land.

Some of the fundamental skills I use in my law practice are the same ones I learned on the land as a child. I know that we need to keep a weather-eye out for clouds on the horizon.  I know that we need to ride-out storms (which always pass), and to plan for when the good times come again. I know the value of making provisions for the lean times, and of making the most of existing resources.

Creating and maintaining a modern integrated estate plan is essential for the Australian farmer.  The legal documents in your estate plan are excellent tools, and like the tools in your shed, they need to be kept sharp to maximise their effectiveness. Preventative Maintenance is essential.

Estate planning is a specialised field, and doing it properly requires considerable care and preparation.  Well-crafted estate-planning documents can clarify how things are managed if someone is incapacitated or dies.

To develop a proper fully-integrated estate plan, a proper analysis of family objectives, net worth, and income needs is necessary, so that the correct estate planning tools can be chosen.  This really needs to be done by a lawyer specialising in estate planning, probably in combination with other specialist advisers regarding accounting, financial planning, insurance and funerals.  Some people worry about the cost, but it is really an excellent investment in your family’s future harmony, because without it, things can get out of control and a lot more expensive.   Protracted legal battles can tear families apart, especially if there are already some family tensions. Without proper planning, families can endure enormous stress, expense & heartache in trying to unravel the estate planning failures of their relatives.

Genders and Partners can help you to protect yourself, your family and your assets.  Let us assist you with Estate Planning in Adelaide metro area and all over South Australia, for your family’s future. Contact us today on 08 8212 7233 to arrange a FREE telephone consultation and to request a FREE copy of our special Report: “7 Things You Must Know About Wills and Estate Planning”.