Historically many farmers have borrowed heavily from banks to purchase their original farm. In most instances, the debt has been repaid by way of a table mortgage. When they have moved to a larger farm, or purchased a run-off or a neighbour’s property, they have borrowed more money from the bank.
Subsequently, over the years, farmers have built up a large asset. Often when retirement age is approaching, they borrow again against the farm for a retirement block.

In doing so some basic investment rules are breached. No fund manager today invests totally in mortgages, fixed interest cash deposits, shares or land. Farmers get trapped by their fundamental need for land, which is valuable when returns are high but drops in value when returns are low. To enable a son or daughter to take over the farm the following methods have been employed:

• Gifting by one or many means, effectively giving away many thousands of dollars to one family member.
• The next generation farmer borrows heavily. Often it is not possible to buy all farm titles with some being leased and bought later.
• Parents provide vendor finance at a generous rate well below what they could receive elsewhere which depletes their retirement income.
• The next generation farmer often has to buy the shares off his/her non-farming brothers and sisters. Often, land may need to be sold if further finance cannot be arranged.

Just when parents have relieved themselves of borrowings from the bank, the next generation starts the vicious cycle all over again. Over three generations, the farm is not paid for three times but around nine or ten times.

Farm succession planning

Goldridge provides expert advice in farm succession planning to help you hand the baton to the next generation in a stress-free, seamless way.

Farm Succession Planning, provide funds for you to retire comfortably on. The length, term and complexity of each plan are dependent on your ability to budget a funding process. To ensure that the farm can stay in the family and be seamlessly handed on, there needs to be sufficient cash available to support two families. No matter what the capital value of the whole operation is, there has to be enough money left over at the end of the day to allow the younger owners of the farm to support mum and dad as well as themselves.

Succession is not impossible but, to make sure that it works out in the longer-term, professional advice should be sought from specialists.

Some points to consider:

• Passing the baton from one generation to the next can be a challenge
• There are some relatively simple processes and systems that can be implemented
• This may include implementing a Family Trust, as one of the baton changes
• Succession can never be equal but it has to be fair
• We can come to you and complete a plan designed specifically for you
• This plan will then form the basis of succession

Copies of the plan will also go to your solicitor, accountant and any other professional advisers you may have for their input as well.