Managing a family agricultural business with multi-generational interests brings with it a multitude of challenges. These include not only the day-to-day management of a sustainable business, but also fostering a smooth transition of property and business ownership through to the future generations in a fair and equitable manner.
When Phillip Dibben, “Dibbo”, first met Dugald and Sarah McIntyre* back in the early 2000’s, they were a busy farming couple with three young children, Hamish, Dirk and Kate, focused on building their business partnership. For more than 15 years, Dibbo has worked closely with the McIntyres, helping them with their business planning, while watching their family grow up.
In 2015, Sarah suffered a severe illness and was unable to continue working in the business. When Sarah became ill, their eldest son Hamish joined the business partnership, and later Dirk also entered the partnership to assist in running the business.
In addition to their roles in the family business, Hamish and Dirk are involved in paid employment externally to enable them to further provide for their immediate families. Their sister, Kate, is not involved in the family business. The family recognised that they needed assistance to more effectively plan for their future, but the complexity of the family dynamics and existing business structures made it difficult to know where to start.
Sadly, Sarah died from her illness in late 2016, triggering the family’s decision to implement a succession plan which considered the needs of all family members, now and in the future, as well as achieving positive outcomes for the business from tax, legal and cash flow perspectives.
A family farming business succession planning specialist was needed to help shore up their future.
Overview and Needs Assessment
Following Sarah’s death, the family agreed that a Partnership was needed to protect the boys’ interests in the farming business and to provide certainty to Kate that she would be catered for within the business succession plan.
The McIntyres approached Dibbo, their long-term finance manager, as well as their livestock agent Tom Woods,* to assist with the process.
Dibbo identified the key concerns that needed to be addressed within the succession plan. Of equal importance, the whole family needed to be in agreeance with the plan. The central issues were:
Family legacy needs: The Partnership Agreement and Succession Plan needed to address how Dugald would fund his retirement without creating unsustainable debt for Hamish and Dirk given that the bulk of his net worth was tied up in farm assets. It was also important to address his sons’ remuneration needs and their expectations and aspirations for the business. Adequate provision for Kate, who is not involved in the business, also needed to be taken into account.
Business structure considerations: Restructuring the farming business needed to address the family’s current needs, including efficiently supporting Dugald’s retirement and maintaining flexibility for the future succession plans for Hamish, Dirk and Kate. It was also important that the complexity of the tax implications and legal consequences of restructuring and transferring assets was understood by all parties before being factored into the succession plan.
Asset protection: Asset protection for business assets and the ability to protect the lifestyle of each family were important planning considerations to ensure continuity of the farming business and each family’s lifestyle if the unexpected were to happen.
Throughout his long relationship with the McIntyres, Dibbo’s mantra has always been to provide personalised collaborative advice that is ‘delivered to your door.’ Dibbo’s inclusive approach was about coordinating the process with relevant trusted professionals, to help all parties understand the big picture and navigate the complexities at hand, in order to achieve the outcomes that the family was looking for.
Dibbo involved their accountant and solicitor throughout the process so they were able to advise on the most appropriate options, including tax efficiencies and legal obligations, when it came to the restructuring of the business and transfer of assets.
One of the most important considerations in developing successful succession plans is ensuring all family members have a ‘voice at the table’. Dibbo’s experience and empathy in the complex area of managing relationships helped to initiate difficult conversations and maintain open communication while developing the Partnership Agreement to protect the boys’ interests in the farming business.
In addition to the many formal meetings arranged to discuss the succession planning process, Dibbo met with each family separately to check if there were additional issues which had not been raised in the group environment. These meetings were also used to ensure understanding of the Partnership Agreement as well as the advantages and disadvantages of alternative business structures. A comparison document outlining possible structures and potential benefits and shortcomings helped to foster understanding of the most appropriate solutions for each family’s personal circumstances.
Dibbo’s specialisation in succession planning enabled him to utilise a number of proformas to more easily develop a framework for the Partnership Agreement. With insight into the long-term objectives of the business from more than 15 years of working with the family to help them grow their business and achieve their financial goals, Dibbo was also able to make use of the comprehensive Annual Report and Business Plan to help shape the succession plan.
The outcomes so far. . .
The impending retirement plans of Dugald are coming to fruition, and he is confident that he can retire with peace of mind that the needs of the business and his children will be catered for.
Following Sarah’s death, an updated Estate Plan was enacted and, with assistance from their accountant and lawyer, land ownership was structured to make the most of CGT concessions and manage land owned prior to September 1985, which is exempt of CGT.
A Partnership Agreement was drafted outlining the foundations and terms of the partnership for Dugald and his sons. The Plan has been broadly agreed by all parties. The solicitor, who has been closely involved in the process to date, has indicated that the level of information included in the Partnership Agreement and the comprehensive nature of the fact finding and analysis shared between the aligned professionals will result in reduced costs for the McIntyre family for the formal drafting of the agreement.
Most notably, the issue of funding Dugald’s retirement from net wealth tied up in farm assets has been addressed through an efficient re-structuring of the business into separate entities. With the trading entity being run by the Partnership and other assets held by entities reflected in the succession plan, Dugald’s retirement will be funded through a leasing arrangement between himself and the trading entity.
The succession planning process has resulted in a clear Estate Plan and Succession Agreement for Hamish and Dirk and their families that provides flexibility for efficient transfer of assets when it comes time to develop their own succession plans. Great care has been taken to ensure that future succession plans will not be disadvantaged by the structures implemented now.
Through Dibbo’s association with Active Financial Management, he was also able to recommend superannuation strategies to help the younger generation plan more effectively for the future, including the purchase of land. Hamish, Dirk and Kate now have the assurance that their lifestyles are protected following a review and recommendations for appropriate insurances.
Clear processes have been established to facilitate more efficient decision making and to reduce miscommunication and frustration between the farming partners. Support was provided to initiate weekly Toolbox Meetings to keep everyone in the loop and outline operational priorities. Quarterly Business Review Meetings facilitated by an independent Chair have also helped to formalise the business structure and maintain a discipline for setting and achieving operational priorities as well as individual long-term financial goals.
The future for the McIntyre family is looking positive, with a comprehensive plan mapping out a fair and equitable future for all members of the family.
What Dugald has to say. . .
“I have worked with Dibbo for years and I trust him completely. He knows my business and, more importantly, my family. Dibbo has without a doubt been the mastermind in creating our family’s succession plan. It was complex and it was hard, but the outcomes are so worthwhile. Would I recommend Dibbo? “In a heartbeat!”
*This case study reflects the service Phillip offered one of our clients, however the names have been changed for privacy reasons.
This advice is provided by Phillip Dibben under Financial Services SA rural business consulting services.
Phillip Dibben is an MFAA Approved Credit Adviser, including SMSF lending, and is an Authorised Credit Representative with Riverland Lending Services Pty Ltd, ABN 37 1415 814 080 ACL 391825, and is licensed to provide advice in all consumer and business loans including equipment finance. All loans are subject to lending and approval criteria.
Phillip Dibben is also a financial adviser at Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306.
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 advice specific to your circumstances.