In rural communities business is often done on the strength of a handshake and locals would tell you it’s as binding as any written contract. It represents a bond of trust and it can transcend generations.
For Phillip Dibben his association with the *Jackson family began back in 2001. It was during a time of extended drought, when the family needed to refinance so they could see their way through to more prosperous times. Back then they needed a clear head, a thorough understanding of finance options, and importantly, someone on their side to interpret the ramifications as they applied in a practical sense. That was exactly what Phillip provided.
Fast forward 13 years and the family have remained firm clients, again turning to Phillip for advice and guidance. This time for planning the succession of the farming business to the next generation.
The family, comprises parents Bob and Margaret; their daughter who is not involved in the farming business; and their son David and his wife Melissa who would take over the business from them, along with their three children.
All of the family members needed to contribute to decision making around the future of the farming business. And it all began with a discussion.
Overview & Needs Assessment
The discussion, led by Phillip enabled the family to outline their goals for the business as well as the timelines for starting the succession process through to actual hand over. The parents were clear in their goal of wanting the business to continue, but they also needed to shore up their retirement as they had no super. They were well aware that in their current situation they would be ineligible for a pension, which meant they would need to rely on the farm to cover their retirement expenses and living costs.
Phillip identified the key issues that were the basis of making succession possible. They needed to:
– Restructure the business
– Transfer the Trustees for asset protection and taxation purposes
– Reach a family agreement for funding the parents’ retirement
– Consider the legacy they wished to leave their daughter
From the outset Phillip’s approach was inclusive and collaborative. He coordinated with a range of professionals, among them the Jackson family’s accountant, solicitor and stock & station agent. There were a wide range of issues, often with significant complexity, that needed to be considered including existing partnership arrangements between the retiring parents and the son and daughter-in-law, the business valuation, capital gains tax and social security factors.
Phillip also recommended and organised an external accountant to conduct an independent review of the existing structure to provide fresh professional insights and recommendations for a framework appropriate for the restructuring the business.
He coordinated family meetings that would formally acknowledge, understand and record each of the family member’s goals. This involved numerous focused discussions and thoughtful compromise in order to reach an agreement that was acceptable for all concerned.
Such is the complexity of succession, the process for the Jackson family took approximately six years from the initial discussion to handover from Bob and Margaret to David and Melissa.
With broad agreement and strategies decided, Phillip enlisted the help of the family’s accountant and solicitor to document and implement the strategies.
As a result of the business restructure, which observed the rules around Social Security and Gifting legislation, the parents became eligible for a pension which reduced the reliance on the business’s cash flow which was to provide the financial support they need in their retirement.
Phillip also conducted a thorough review of personal risk insurance requirements for David. This included successfully navigating a number of challenging health issues to implement an appropriate personal risk plan that would safeguard his family’s financial position in the event of illness, disability or premature death.
While Bob and Margaret’s daughter would not be involved in the family business, careful consideration was made for her via an inheritance documented in their Wills.
The outcomes so far…
With Bob and Margaret now retired, stage one of the succession plan is complete. However, Phillip’s role continues with David and Melissa as they consider their own succession. Planning is already underway for bringing the two adult sons into the business and how their daughter will be included in their estate planning. Formal arrangements have been initiated for formalising buy-sell and partnership agreements, as well as profit sharing arrangements that supplement their two sons’ off-farm roles.
The focus is now on the business and the financial strategies for the next generation with Phillip continuing to play his role as a trusted and knowledgeable adviser and mentor. To date he has arranged first home finance for one of David and Melissa’s sons, and discussed with him wealth creation strategies and the importance of wealth protection insurances.
The future of the Jackson farming business is looking bright. With Phillip’s guidance, both the current and next generation of family members are set to refine their business operations by developing and implementing a Farm Business Management / Collaborative Farming model. It’s a model that brings a greater Business First focus to decision making now, and for the future.
*This case study reflects the service Phillip offered one of our clients, however the names have been changed for privacy reasons.
This information is provided as an Authorised Representative of Fortnum Private Wealth Ltd.
Phillip Dibben is a financial adviser with Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. www.fortnum.com.au and www.activefm.com.au
Phillip Dibben is also an Authorised Credit Representative of Riverland Lending Services Pty Ltd, ABN 37 145 814 080 ACL 391825. www.rls.net.au
This information does not consider your personal circumstances (including taxation) and is of a general nature only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.