It is a process that requires a proper estate plan, as many factors need to be taken into consideration.
Succession planning focuses on the future of your farming business, which is an integral part of an estate plan.
In most cases, the farming business makes up the majority of the wealth, which could make it difficult to have an even and fair distribution of family assets.
Your farming succession plan may include transferring ownership to a specific family member; you may, for example, want to be fair to an heir who will not actively be involved in farming, which will then require you to leave the equivalent in shares, cash or assets.
Equality of entitlement could leave behind a debt burden due to the division of assets or sale of the farm or farming assets because such a division may not be possible.
In terms of Section 3 of the Subdivision of Agricultural Land Act 70 of 1970, agricultural land cannot be bequeathed to more than one beneficiary.
When the decision is taken to put a succession plan in place, there are a few points that need to considered:
- Have you communicated your plans to your future successors to make sure your wishes can and will be carried out?
- What if your beneficiaries do not want to work on the farm, but would rather prefer to cash out their inheritance?
- Do you have a valid will in place?
- Does your estate plan allow your succession plan to be fulfilled?
- Is there is enough liquidity in the estate to take care of the tax implications and expenses that apply to your estate at your demise?
This highlights the importance to have a concise estate plan; a poorly drafted estate plan can lead to hardship and may not reflect the true intention of your wants and wishes.
One needs to take cognisance of the fact that succession and transfer of one’s estate assets can happen at different times.
Even though both are connected, they are mutually exclusive; for example, succession may occur when an individual reduces their input in the farming business due to retirement or factors like ill-health. Estate transfer can take place at death.
Estate planning is the arrangement, management and securement and disposition of a person’s estate so that he or she, their family and other beneficiaries may enjoy and continue to enjoy the maximum from their estate and assets during their lifetime and after death, no matter when death may occur (Meyerowitz,1965).
Timing is crucial; a succession plan will have a greater chance of success if the planning process is started early in one’s life cycle.
The earlier one embarks on this important aspect pertaining to their farming business, the more options will be available to reach the required outcome.
In saying this, one should avoid the most common mistakes when it comes to succession and/or estate planning.
Indecisions regarding the future of the family farm could lead to the time thief called procrastination, which would lead to the lack of an estate plan, and that could be costly, as taxes and expenses may not have been catered for.
Not maintaining one’s estate plan as one’s financial circumstances change is not advised.
Try and treat everyone equally by leaving all assets to be divided equally among children. However, bequeathing farm assets equally could be difficult and not practical if all beneficiaries do not remain actively involved in the farming business.
Not leaving adequate liquidity in an estate at the time of death is also not advised. Death can be costly if the expenses related to it are not covered. Cash may be needed to continue a farming operation at the time of death prior to an estate been finalised.
The material is not intended as and does not constitute financial or any other advice. The material does not take into account your personal financial circumstances. For this reason it is recommended that you speak to an accredited broker or financial adviser to consider all your options and draw up a plan to achieve your financial goals.
Kalaivani Govender is a legal adviser specialist at Old Mutual Personal Finance.