When it comes to planning your farm’s succession, there’s a lot to consider; it can seem overwhelming at first. But if you think of succession planning as a process instead of an action, it makes it much less daunting.
No-one wants to talk about is what will happen to their personal and business affairs when they die. It’s totally understandable; it’s a difficult topic and because of that, most families don’t have a plan in place. Sadly, this can lead to unnecessary stress, expense and even conflict at an already difficult time.
So, what can you do to make sure this doesn’t happen to your family?
Succession – make a Will
It sounds obvious, but the first thing you should do is make a Will. Have it drawn up by a solicitor so that it’s valid, and don’t forget to review it from time to time, to make sure it still reflects your wishes.
If you don’t make one, or it’s invalid, then your assets will be distributed according to the laws of intestacy.
This essentially means that if you’re married or have a civil partner, and you have children, your spouse/civil partner will inherit two-thirds and your children or estate will share the other third.
Create an Enduring Power of Attorney
It’s not nice to think about, but it’s worth considering what would happen if you became mentally incapacitated through accident or illness or if you developed Alzheimer’s disease or dementia. In situations like these, your family could find themselves in difficult situations like not being able to access your banks accounts to pay your bills.
If you create an Enduring Power of Attorney, you can avoid these problems. Essentially an Enduring Power of Attorney is a legal arrangement where you nominate someone you trust to act on your behalf. Unlike a Power of Attorney, it only kicks in if you become incapable of managing your own affairs.
Create a ‘life file‘
It’s a great idea to create a ‘Living File’ or ‘Life File’ to store all the information that the person dealing with your affairs will need.
Here are examples of what to include:
- Your Will;
- Enduring Power of Attorney document;
- Up-to-date list of your personal assets, properties, debts and liabilities with photographs of valuable possessions;
- Vehicle details;
- Bank accounts and investments;
- Life assurance policies;
- Burial/cremation wishes and any prepaid funeral details;
- List of people you’d like to be notified of your death;
- Contact details for your professional advisors;
- Contact details for essential service providers for your farm;
- Legal agreements such as partnership agreements;
- Birth, death, and marriage certificates;
- Separation/divorce papers.
Involve family in succession planning
It’s natural for family relationships to become strained at times of grief. Give your family the best chance of avoiding conflict by involving them now in what you’re planning for when you pass away.
Good communication makes a smooth transition much more likely. If you find the idea of discussing this difficult, or you think consensus might be hard to achieve, take the pressure off by getting your accountant or solicitor to chair family meetings. They can help steer the conversation and outline all of the options so that everyone can agree what’s in the best interests of the family and farm.
Protect yourself, your family and your farm
If you’re thinking of disposing of assets, make sure you consider what’s needed to protect you and your family’s financial security. Despite our best efforts, relationship breakdowns can happen, so consider what can be done to minimise risks.
Good questions to ask include:
- What will happen to the farmhouse?
- What, if any, future involvement do you want to have on the farm?
- Do you need to take any money out of the business to provide for other family members?
Popular options include retaining some land, putting some land in joint names or selling some land to the farm company.
Another important thing to consider is have you got life cover in place to help provide peace of mind that your family will have some financial protection upon your passing. Always, it’s best to discuss all of this with your professional advisors before you make any decisions.
Make sure you understand the Fair Deal Nursing Home Scheme
If you’re considering availing of the Fair Deal scheme, be aware that up to 7.5% of the value of the farm could be set aside annually to fund nursing home fees.
If you don’t transfer your farm to a successor and you need support for nursing home fees, the potential costs are huge. Here’s an example to put it in perspective:
Imagine you have 100ac valued at €1.2 million. You also have an old age contributory pension but no savings worth talking about. Let’s estimate your nursing home cost estimate at €1,500/week or €78,000/ annum.
While you’re a resident, this would be funded as follows:
- 80% of your pension (€200/week)
- This leaves a charge of up to €68,000/annum to the farm;
- If you’re a resident for five years, the cost to the farm will be a minimum of €340,000.
This cost would have to be discharged before the farm could be transferred to a successor, whereas an early transfer of your farm can minimise this cost.
Contact ifac today to see how they can help you with your Succession planning and see ifac’s Farm Succession Guide by clicking here.