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ADDITIONAL READING
The 8,580 farm businesses which have a VoS above $1,300,000 are likely to have a capital value of over $26,000,000. If their equity within the busi- ness is strong, they have sufficient scale to develop more options. If their debt level is high, they face similar choices to the smaller businesses. Universal agreement for one option is unlikely. Most families benefit from a team of advisors to as- sist with the process. Open, honest discussions be- tween family members is vital and these are more likely to be fruitful if facilitated by a person who does not have a stake in the outcome. Finally, when a farm is sold, many outsiders judge the sale to be a failure of succession plan- ning. The reverse may be the case. The sale may be a triumph of good communication and planning.
These borrowings can be used to fund retirement in Generation A and fund a distribution to the non-farmers in Generation B – let’s assume two people. Because the interest only commitment is $264,000, in this scenario, the farmer is almost treading water financially and the non-farmers will receive whatever their parents can hand on from the $4,400,000. At best $2,000,000 each. What are the other options for the 10,990 farm businesses in the $400,000 to $1,300,000 VoS range? To answer this question, individual family mem- bers must declare where they stand on a con- tinuum. At one end the farmer secures what the farmer wants (non-farmers have to put up with it) and at the other end the eventual distribution of assets is equal and the farmer either accrues huge debt or secures a smaller farm – or the farm is sold. The options are: 1. Farm/farmer above all – farmer retains all the assets to ensure business continuity; non-farmers lose out completely. 2. In favour of the farm/farmer – they retain 80% as described in the example above and the non-farmers put up with a split of the residual. 3. Compromise and divide - Part of the farm is sold so more can be distributed to the non-farmers and the farmer has a smaller farm and/or more manageable debt. 4. Pursue equality above all – farmer has to borrow more or hand over more assets to en- sure an equal split – places business at risk/ reduces scale. 5. Restructure - One, or multiple trusts are es- tablished to own the land, and one member of Generation B leases the land and owns and operates the farm business. 6. Partial handover and leaseback - Some discrete parcels of land, not including vital infrastructure, are handed over to the non-farmers, but the business retains the use of the land via leasing. 7. Liquidate - The whole farm is sold and the proceeds distributed.
Dr Mike Stephens AM , Founder and Director at Merid- ian Agriculture, is a succession planner with 40 years’ experience in agriculture consulting. With editorial as- sistance from Bryony Fitzgerald.
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