Good advice can be worth more than a bumper year – especially in succession planning
This is a sad story of how a farm succession went terribly wrong, all for the lack of a little good professional advice. If you’re within ten years of handing the farm on, read it now.
This case family began thinking about succession planning almost a decade ago. It was a good start and they took a professional approach, but for various reasons they didn’t finish it until recently.
The parents had already reached pension age when the family farm and associated debt was transferred (gifted) to the sons.
This activated the inevitable consequences of a planning mistake made more than five years previously.
Under Australian pension rules, if people applying for a pension have given away (or under-sold) significant assets in the preceding years, then those assets will be deemed to be still owned and generating income for five years.
For the case family, this meant that they were deemed to be earning an income equal to interest on the farm value at current government bond rates. This non-existent, deemed income exceeded pension limits, so they got no pension for five years.
They also were not eligible for a Commonwealth Health Care Card.
Sadly, one of the parents is now seriously ill and needs 24 hour medical care.
The farm has to support not only the sons working it but also the retired parents, with medical expenses alone regularly exceed $6000 per month.
And the pension exclusion is for five years.
There may be no solution to this tragic case, except for the sons supporting their parents for five years.
This is one very painful example of a trap in rural business transition planning, but there are others.
For example, it matters which parent’s name the property is in, if one dies during a transition or deeming period.
Even if you are not expecting to apply for a pension or health care card, there are significant financial planning issues to the considered.
The real solution to unexpected succession issues is to get professional financial advice from someone with extensive rural and farm experience, right at the beginning.
In this case, an RFCS WA counsellor would have warned of the need to gift the farm at least five years in advance of retirement.
The Rural Financial Counselling Service team can assist you in negotiating the tricky waters of succession planning, but only if you contact us well in advance. We want all farmers to fully enjoy their retirement, without financial stress.
Find out more at rfcswa.com.au and contact a counsellor direct (go to Contact > Counsellors on the website) or phone 1800 612 004.
RFCS WA is operated by a not for profit community group and receives funding from both Federal and WA governments.
Services are free to farmers, foresters, fishers and small rural businesses servicing them, that are doing it tough.
Counsellors are country people, farmers and from farming families in the main, with skills, knowledge, experience and formal qualifications in business financial management.
Some details in this real-life case study have been changed to preserve client confidentiality. All of RFCS WA’s client work is strictly confidential.
Media contact Mr Chris Wheatcroft (CEO of RFCS WA) 0448 773 331