Farming & Rural Estate Planning

www.freshmanagementsolutions.com.au
A Step by Step guide
to ensuring you
and your familys future
Written by Chris Castles
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esults!
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Introduction
Estate and Succession planning for many people is a confronting process, but it is particularly so
for farmers. It is something that many of us ignore, even though we know there can be some
very serious consequences.
Most people think estate planning is all about the Will. But in reality, assets that we own may
not be dealt with under a Will, or the effectiveness of our estate can be changed through
decisions made by our Enduring Power of Attorney. An effective estate and succession plan
addresses all of these issues.
An effective estate plan starts with a positive attitude, and in the case of a farming family, the
recognition that children can be treated equitably, but not necessarily equally. Coming to grips
with this fundamental principle will release you from the pain of estate planning and allow you
to move forward.
The plan starts with a small step - determining the principle for the division of your estate, and
finishes with communication. Putting a plan in place without communicating it to those that
will be affected is a recipe for family disintegration.
Over the years we have helped a number of families with their estate and succession planning.
The process we follow is successful and provides good outcomes for our clients. We hope that
this publication will provide you with the basic steps to allow you to take action. It provides you
with a starting point to the process and will point you in the right direction.

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The Farm Succession Planning Process
Passing the farm to the next generation is not something that can occur in a few days. The
process can be considered divided into seven steps:
Succession Planning Process
1. Determine
your
Goals
2. Collect
the
Information
3. Dertermine
Critical
Issues
4. Examine
Your
Options
5. Develop
the
Plan
7. Implement
6. Communicate
Each part of the process will be explained in more detail in the pages that follow.
Any plan has a number of competing criteria but in reality your plan can be considered to
be a balancing act between three criteria; certainty, flexibility and simplicity. Flexibility and
simplicity compete to provide certainty, and there are continual trade-offs required to achieve
any sustainable implementation plan.
To put an effective plan in place you will need to
consult with your advisers as you move through
the process, but it is impossible to start without
some underlying principle or goal that you want
to apply to your estate. The easiest way to
determine this is to look at the big picture and
worry about the details later.
Knowing what forms part of your estate is very
important as you may be trying to deal with assets
that arent part of your estate. Other options are
available where this is the case, and generally
there will be a number of issues that raise their
head as you work through the steps. When you
encounter these it is rare that there will not be
a solution, and when you finish the process you
will have a level of satisfaction that you have met
your goals and provided a succession strategy
that meets your familys needs.
Many challenges to estates result from inadequate communication where potential beneficiaries
are surprised by the outcome. Good communication between all of the parties involved is
essential to ensuring that everyone knows what to expect, how it is to be implemented, and
what the implications are for them.
Flexibility
Simplicity
Sustainable Plan
Certainty
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Determine Your Goals
When you start out it is easy to get overwhelmed when you go straight to the detail in trying to
determine how best to handle your affairs. You should focus on broad goals so that you can
make the decisions that matter. You will generally have goals in relation to the transfer of your
farming asset in the following areas:
Equitable versus Equal Treatment Income Asset Protection Security
Equitable versus Equal Treatment
In most farming arrangements it is very difficult to treat all beneficiaries equally when it comes
to the division of the estate. The farm is generally the major asset, with the off-farm assets not
being sufficient to equalise the estate. Insurance may be used to help offset the difference,
but the costs increase significantly with age and it is not always feasible to continue with the
policies through to when they are required. There are other options such as periodic payments,
lump sum payments, interest free loans and more, but the overriding consideration is that
the farm remain viable. Because of this you need to be prepared to treat the beneficiaries
equitably, but not necessarily equally.
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Income
In any farm transition arrangement you need to ensure that you have sufficient income to meet
your requirements. The income may come from off-farm investments, Government benefits,
payments associated with the transfer of the farm, or a combination of all three. Whatever the
combination, you should never assume that if you needed a top up that you can collect off the
farm. This just doesnt work and can create friction and family breakdown. Make sure that you
have your income sorted before making any transfer arrangements.
Asset Protection
The property has generally been in the family for generations and one major consideration
for anyone considering passing the farm down is how to protect the farm. Protection from
marital misadventure, creditors, bankruptcy, and claims through the estate are generally the
main considerations. As with anything of this nature there are a number of options. You can
be very prescriptive, or you can provide a high level of flexibility. Each has its own advantages
and disadvantages but normally the greater the protection the less flexibility and vice versa.
Security
In any succession arrangement security is an issue. If you decide to remain in on-farm living it
will be how to ensure that you will never be forced to leave the farm. If it is payments for the
property transfer that you are relying on it is how to ensure that you receive those payments
and ensure the viability of the farm at the same time. If you are funded by off-farm investments
it will be that those investments will continue to provide you with the lifestyle that you want to
enjoy.

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Collect the Information
Getting the best result depends on the quality of the information that you gather. Transferring
the farm is not just about transferring the land. Other factors such as how the farm is operated,
what are the family situations of those receiving the farm, what agreements are in place with
suppliers and purchasers, what happens if something happens to you or the person you are
transferring the farm to.
Financial Information
Naturally, as part of the succession process ensuring the financial well-being of those transferring
the farm is paramount. Further consideration is the equitable treatment of beneficiaries and
the tax and stamp duty implications of any potential transaction. Detailed financial information
is required to be able to provide the specific advice required to implement any plan successfully.
The following data should be collected as a minimum:
The title details of your farms, the purchase costs of the land and the estimated value of the
properties.
Details of your operating entities such as partnership, company, trust etc...
Latest financial statements for the last three years for the operating entities.
Detailed eq uipment asset listing with the depreciated value as well as the current market
value of the equipment.
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Details of all of your farm related liabilities including the facility amounts, interest rates,
required repayments and property secured for the facilities.
Details of your off farm assets and their ownership.
Details of all superannuation policies.
Details of your insurance policies, their ownership and beneficiaries.
Relevant Documents
The financial information is only part of the story. The agreements and other legal documents
that frame your business operations and personal affairs are also important to gather together.
The following documentation must also be gathered:
Constitutions for any companies that you operate.
Trust deeds for any trusts you may have including discretionary trusts, unit trusts, Self-
Managed Superannuation Funds (SMSFs).
Any partnership or shareholders agreements that you may have in place.
Copies of any lease or rental agreements.
Copies of any cultivation, agistment or other similar agreements.
Any supplier or purchaser agreements that you have in place.
Documentation relevant to your finance facilities.
Copies of your Wills and Enduring Powers of Attorney.
Family Information
Family information allows full consideration of the circumstances of the various family members.
Such information is generally used to determine the best structures, cater for any special needs,
and ensure that appropriate flexibility is built in to facilitate further generational transfer.
Details about the following are required:
Details about the farming children including their ages, domestic situation and stability, their
children, and their likely role in the farm.
For non-farming children, their occupations, their likelihood to require support from the farm
in future years, their attitude to passing on the farm (this will be discussed later).
Any special circumstances which may be happening, are about to happen, or are likely to
happen in the future. For example if there are any rocky relationships, if there are businesses
not trading well and likely to be put into administration, if there are any children requiring
special needs.

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Determine Critical Issues
This step is the most important one. In the past you may have got to this point in your planning
and it became all too hard. Each critical issue needs to be determined and a strategy put in
place to address it.
You will already be aware that the critical issues will need expert advice to plan for and minimise
their impact. Success does not happen by accident, and the more planning undertaken at this
stage, the better your result will be and the more satisfying the outcome.
A few potential critical issues are listed below and expanded upon later:
Asset Protection Security in Retirement
Taxation and Stamp Duty Control
Equality Family Harmony
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Asset Protection
Generally the value of the family farm is significant in relation to the other assets held. As a
result, protection of the asset is important and needs to be considered in the context of the
environment in which the family operates. Any strategy should consider the risk from:
Claims from other beneficiaries.
Claims from creditors and trustees in bankruptcy.
Breakup of a family relationship.
Unintended transfer of control.
As I mentioned earlier, flexibility and simplicity often have to be traded to achieve the certainty
of outcome that you want. Risks need to be kept in perspective and, while sometimes it is best
to plan for the worst and hope for the best, the cost benefit associated with doing so may not
be worth it.
Security in Retirement
Your financial security in retirement is paramount when considering the transfer of the farm.
Where your income is assured through off farm assets you have more flexibility in the transition
of the farm than otherwise. However, if the off farm assets are to be used are part of your
equalisation strategy for the other potential beneficiaries of your estate then additional
challenges may present themselves. How do you ensure that there is some inheritance left
for the remaining beneficiaries of your estate. Do you transfer some of your off-farm assets
now? If so, how do you secure your retirement? These questions all need to be addressed in
an effective succession plan.
If you require income off the farm to secure your retirement, how do you ensure that you will
receive the income. What will be the situation if you need a lump sum to buy a car, or for
medical treatment, or for entry into an aged care facility at some later stage? How will your
position be secured to protect you? Advice is required to address these very sensitive and
complex issues.
Taxation and Stamp Duty
Poor planning will, not may, lead to additional tax, and potentially stamp duty, being payable
on any transition of assets.
The ability to take advantage of the many concessions available for the reduction or delay
in crystallisation of Capital Gains Tax need to be carefully explored and understood. These
strategies need to be incorporated in the overall plan so that the best result is achieved.
The transfer of farm and partnership equipment can also be subject to additional taxation
if not planned correctly. There may be a trade off between immediate implementation and
implementation over a period of time to achieve such results, but without having the options
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presented for consideration you may embark on a course which costs you dearly in the long
run.
Control
Giving up control is perhaps the hardest aspect to deal with. Seeing the farm pass down to the
next generation, new practices being adopted, or things being done differently to the way that
you used to do them, can be particularly confronting.
To alleviate any concerns in this area the transfer can occur over a period of time with perhaps
the farm enterprise being transferred initially, and the farm property to be transferred at a later
stage.
Also, what about the potential for unexpected changes of control. This can occur where a
beneficiary passes away or becomes unable to act for themselves. It could also manifest as a
result of inadequate planning in relation to the control of the entities that are used to run the
farming enterprise. Unfortunately these aspects are rarely addressed until it is too late unless
expert advice is obtained.
Equality
Being asset rich and cash poor generally means that the largest asset is the family farm. So to
treat beneficiaries equally becomes a major challenge. Because of this the overriding principle
of equitable treatment of beneficiaries needs to be adopted in most cases.
Equality may be able to be achieved if there are insurance policies in place and they are
maintained. However, the reality is that as one ages, the cost of the policies increases and
inevitably the policies are ceased prior to passing away. This can create a significant gap in the
value for each beneficiary.
Other ways can be used to try to treat beneficiaries equitably. There can be payments from the
farm to the other siblings. Where this arrangement is adopted consideration needs to be given
to the ongoing viability of the farming enterprise.
Family Harmony
Family harmony is something that can be disrupted when any succession plan is put into place.
Different members of the family may feel that they have been treated unequally or unfairly
when the plan is revealed to them.
There is no easy solution to this challenge except to say that nothing can beat communication
and allowing people to be heard. Many family disputes occur because potential beneficiaries
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have expectations that are not met, and they dont know why. When you feel like you have
communicated enough, talk again and again as you can never over communicate.
Examine Your Options
Once you have a clear picture of what you want to achieve and you have identified your critical
issues, you will want to consider your options. What path you can take to achieve the objectives
of your succession plan.
By now you will realise that the achievement of certainty in your succession plan will require
some trade off between simplicity and flexibility. When you are considering your options it is
easy to be overwhelmed with the decisions that you have to make. This is a disempowering
state and to work your way through your options, considering all of the issues, you should seek
the advice of an expert.
Using an expert in succession planning is similar to using a coach in tennis. They can have a
look at what you are doing, identify any gaps that you may not be able to see because of the
focus you have, and make suggestions and give guidance as to what the best possible solution
is for you.

Develop the Plan
You are now at the stage where you can put together a written plan which outlines what you
want to do.
So why should you have a written plan? Why cant you just get on with the job and start
implementing the results of the previous steps? The answer is simple really. A written plan
means that you have something for everyone involved in the process to consider. Words mean
different things to different people and by having a cohesive document that addresses your
major concerns and the strategies for implementation, everyone involved can consider your
intentions in the same context.
A written plan will help you to:
assess family members to see if they are ready for the transition,
ensure that steps are in place to minimise tax,
provide appropriate structures to provide protection from creditors and relationship
breakdown
minimise the disharmony in the family if there are differing views on what should be
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happening, and
provide you with comfort about your retirement plans and how they are funded.
Communicate
Humans are complex beasts. Communication takes place in many forms. A simple nod of the
head, a particular tone, a word used in the wrong context. Where there is fear and uncertainty
these can be recipes for disaster.
When you embark on the succession planning process you will experience a range of feelings,
as will the other family members involved. Good feelings can give direction and confidence,
while bad feelings can overwhelm and paralyse. Bad feelings generally occur as a result of
mistaken beliefs, unfulfilled expectations and undelivered communication. It is the latter two
that are particularly important in the succession planning process.
Generally family disharmony will occur because the expectations of a family member are not
being met, and then this festers because there is no communication about the reasons why,
how they are feeling, or the concerns of the parents. In the tough world of farming there is
normally little room for the touchy feely things of life, and unfortunately that leads to the
disharmony that we see in many family succession arrangements.
The meaning of your communication is the response you get. The response you get is a direct
result of the way the message is delivered, and the way it is received. Communication can
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never be delivered until the receiver understands and acknowledges the message.

You Encode You Speak They Hear They Decode You Think
They think
they know what
you mean
In the succession process effective communication is essential. Family meetings explaining the
process, your reasons for your decisions, and asking for feedback and concerns are essential
to maintain family harmony and ensure that the process remains on track. Having an objective
professional facilitate the discussions can greatly improve the lines of communication and the
overall outcome.

Implementation
Gathering your information together puts you in a good position to make decisions about your
financial affairs and succession planning. However, Just as thinking about physical exercise
wont get you fit, it is implementing the plan that will get you the results.
Implementation may take several years if the process needs to be staged so it is important that
expectations are managed during this time. This may lead to frustration amongst the parties
involved so communication needs to be maintained.
A journey will never begin unless you take the first step, and will never end unless you get to
the destination. Persistence is the key.

Information
Action
Results Decision
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Choose Advisors Carefully
Already you have probably experienced the frustration of going to your accountant, lawyer or
other related professional to achieve your succession and estate planning objectives only to
discover that there is no co-ordinated approach or commitment to seeing the process through.
Fresh Management Solutions approach is to adopt a project management role facilitating
communication between family members and managing the input required from the various
professionals that will be involved. Naturally, the introduction of a project facilitator brings
some objectivity and accountability to the process and enables your objectives to be achieved.

ADVISOR
CLIENT
Tax
Money
Management
Financial
Planning
Legal
Insurance
This role is a challenge and one that has great responsibility associated with it. Some traits that
you should look for in your choice of advisor are:
understanding consistency perspective
respect challenging focussed
good communicator attentive
When these traits are balanced with your commitment you will achieve the results
that you need.

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Personal Balance Sheet
FARM ASSETS
Your Assets $
Land
Farm Buildings
Farm residences
Machinery and Equipment
Livestock
Quotas
Inventories
Total Farm Assets
Your Assets $
Mortgages
Bank Loans
Bank Overdraft
Finance Contracts
Tax Liabilities
Total Farm Debts
Net Farm Value
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LAND DETAILS
Legal Title and
Acreage
Registered Owner Original Cost Current Value
Investment Assets
Description Notes Owner Date
Acquired
Purchase
Price ($)
Current
Value ($)
Investment
Property
/ /
Investment
Property
/ /
Managed
Fund
/ /
Cash (Bank
Accounts)
/ /
Direct Shares
/ /
Term Deposit
/ /
Other:
/ /
/ /
/ /
/ /
/ /
Total
Off Farm Assets
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Lifestyle Assets
Description Notes Owner Date
Acquired
Purchase
Price ($)
Current
Value ($)
Home
/ /
Holiday Home
/ /
Home
Contents
/ /
Motor Vehicle
/ /
Motor Vehicle
/ /
Boat/Caravan
/ /
Other:
/ /
/ /
/ /
Total
Superannuation Assets
Fund Name Notes/Description Owner Current
Value ($)
Is insurance
Included?
YES NO
YES NO
YES NO
YES NO
YES NO
YES NO
YES NO
YES NO
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Income Streams
Description Notes/Description Owner Current
Value ($)
Liabilities
Description Owner Lender Amount
Owing ($)
Term Type
(P & I or IO)
Interest
Rate (%)
Repayments
($)
Frequency
Home
Mortgage
Investment
Loan
Investment
Loan
Credit Card
Credit Card
Credit Card
Personal Loan
Other Loans
Total
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Insurance Details (Including Life, Total & Permanent Disability, Trauma & Income Protection)
Description Policy 1 Policy 2 Policy 3 Policy 4 Policy 5
Insurance Type
Investment
Company Name
Product Name
Policy Owner
Life Insured
Name
Sum Insured
Waiting Period
Benefit Period
Date of
Commencement
Premium &
Frequency
Loadings/
Exclusions
Nominated
Beneficiaries
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Personal Budget Expenses
Category Description Weekly
($)
Fortnightly
($)
Monthly
($)
Annual
($)
Personal Debt
Commitments
Home Mortgage Repayments
Credit Card Repayments
Car Loan / Lease Repayments
Personal Loan Repayments
Other
Investment Costs
Investment Property Repayments
Other Debt Repayments
Other
Housing
Rent
Council / Shire Rates
Water / Electricity / Gas
Internet / Telephone
House & Contents Insurance
Household
Repairs/Maintenance
Furnishings/Appliabces
Other
Transport
Running Costs / petrol / Fuel
Registration & Compulsory Third
Party (CTP)
Comprehensive Insurance
Maintenance /Service / Repairs
Other
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Consumable
Groceries
Alcohol / Cigarettes
Other
Health
Private Health Insurance
Medical/Dental/Optical/Chemist
Other
Children
School Fees
Child Care
Child Support / Maintenance
Other
Personal
Clothing/Footwear
Entertainment/Dining Out
Sport/Recreation/Hobbies
Gifts/Presents/Christmas
Vacations/Holidays
Subscriptions/Books/Newspapers
Life/TDP/Trauma/Income
Protections Insurance
Other
Other
Pets / Vet Fees
Charities / Donations
Miscellaneous
Grand Total (Transfer this amount to page 11)
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About The Author
Christopher J Castles
Professional Financial Advisor & Business Consultant
Wealth creation
Business structuring and restructuring
Estate planning, asset protection and superannuation
Succession planning
Chris Castles is a Certified Practising Accountant
and a Certified Financial Planner. He holds
a Bachelor or Engineering (Electronic), a
Post Graduate Diploma of Management
(Marketing), a Post Graduate Diploma of
Business (Accounting) and a Diploma of
Financial Planning. He also holds a commercial
fixed & rotary wing pilots licence.
He is a partner in FRESH Management
Solutions, a firm that specialises in
comprehensive Management and Succession
Planning Services. He has participated in roles
as shareholder and Director of major listed
investment companies.
His knowledge and experience spans more
than a decade in providing financial planning
services to wealthy individuals and small to
medium size businesses. Before working
in finance, Chris was an officer in the Royal
Australian Air Force.
As Director of FRESH Management Solutions,
Chris has produced this workbook with a mission
to assist experienced and aspiring farmers
in the effective transition of farm business.
Working with farm advisors including lawyers
and other business planning professionals,
Chris has designed effective strategies to help
farmers and their families keep farms and
land in production for the next generation.
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Fresh Management Solutions is a Management
consulting advisory service with proven
capacity and capability to manage complex
issues facing businesses today.
With a complement of expert consultants
fresh management solutions is a firm driven
by a central aim to be leaders in Management
solutions with significant technical skills and
business experience.
The firm takes a team approach with
clients, developing strategies founded in
understanding of industry dynamics, to deliver
valuable, commercially sound and result-driven
outcomes.
Our roll in providing information and
education services to accountants, financial
advisors and other professionals is integral
to the development and maintenance of this
relationship.
Fresh Management Solutions relationships
with accountants and other advisors has
focused on delivering exceptional service to
their clients and support in areas such as:
Education & Training programs
Assisting in the education of clients through
seminars, technical summaries and providing
content for newsletters and other client
publications.
Giving regular presentations at conferences
and industry forums.
Developing comprehensive tools to assist
the advisers in giving advice to their clients.
Our range of presentations generally run for
45 minutes to an hour but can be tailored
to meet specific requirements. For example
presentations can be combined to provide a
more in-depth workshop or shortened as part
of another presentation.
About Fresh Management Solutions