What Happens to the Farm Once You're Gone?

Phil Brunner • Jun 01, 2021

You love your farm but what happens when you decide to retire or you pass away? Which simply raises the question:


“Once you’re gone, what happens to your farm?”


As a precursor to this Agribusiness article i remind readers that the below contents are general in nature and do not constitute legal advice. 

The fact that you are here, reading, might mean you’ve asked yourself the same question, so in order to make the answer a little easier, we are going to have a look at how you can create a proper succession plan.

The Imbalance of Inheritance

Before we get to the practical side of succession planning, an explanation on the best mindset to have when approaching this delicate subject becomes necessary.

In what so many call “the good ol’ days”, a common theme for succession was that when a landowner died his property would pass on to the closest male relative of the family, inevitably excluding women from any land inheritance.

So, what exactly happened, for example, if the landowner had left a brother, a wife, and daughter?

The ownership of the estate would pass on to the brother, and the deceased’s wife and daughter would be left to fend for themselves, which created a problem. One that we are unfortunately still seeing some of the side effects to this day. 

Our friends at CWA realised this problem some time ago and created accommodation for some of these displaced women. But that isn’t a long term solution and probably not one you want for your loved ones. 

There are still many family businesses that haven’t addressed this issue and hopefully this article jogs you to acknowledge and take action on planning for a future that you may or may not be part of but are most likely to be able to influence.

The Danger of An Unfairly Written Will

As you can imagine, the practice adopted in the “the good ol’ days” led to a great deal of injustice, after all, farms are more than just land, they are also businesses, and having only the closest male relative inherit all the farm assets often created an uneven distribution of the deceased assets between the men and women in the family.

One of the ways in which society has addressed this inequity was to introduce the Family Provision Act 1972 (FPA), which gave women (and other family members generally), a right to contest an unequal distribution where they felt that they were treated unfairly by their deceased parent (or partner or grandparent).

However, the relevant test under the FPA does not hinge on someone’s subjective view of what is fair or unfair. The test is whether the deceased made “adequate provision from his/her estate for the proper maintenance, support, education or advancement in life” of the person contesting the distribution. As you will no doubt suspect, the meaning and interpretation of this phrase has itself led to many disputes.

The obvious danger is that the test is not necessarily straight forward and lends itself to further dispute and legal complication.  

That is to say: A failed Succession Plan can easily lead to the destruction of family ties where siblings sue each other for property and fight over the property left by their parents or partner.

Before You’re Gone

In order to address the potential inequities and legal complications that can arise from not having a succession plan, or not having a properly balanced succession plan, it is important to recognise that the “farm” is not just a square of land, but is also a business, with all the different assets and complications that that come with running a business.

Farm businesses are often set up with different entities separately owning the land, the machinery and stock, and also quite often a completely separate entity operates the “business”.

So, to provide balance and to try to avoid possible conflicts that may arise with your departure, a common and efficient solution is to deal with your assets whilst you are still alive.

There are some advantages to this, one being that as you are still around, you can act as a mediator between your spouse and or children, and you have the ability to talk to them to try and manage expectations over wants and needs, before you depart.  

In preparing any succession plan it is important to remember that everyone is different and will not necessarily have the same expectations on inheritance. This highlights a benefit of being able to discuss your proposed succession plan with your children whilst you still can. This can assist in structuring the distribution of your assets among your children.

Shared Ownership and Inheritance

Here’s another pickle for you: 

Let’s say there are three brothers that inherited a farm together and have been working it for thirty-five years, now one of them is looking to retire and pass down his share to his descendants.

How can the farms assets be correctly passed down the succession line without creating complete chaos?

There may be a multitude of ways to achieve this, each dependent on the current structures of ownership and control of the farms, the business and assets and other imposts, such as taxation and duty costs. Attempting to find a low cost way to achieve the desired outcome can sometimes be a complex problem and solutions may require some expense and some time to implement.

Where trusts are involved, complications can arise due to the breadth of the pool of beneficiaries, who the appointors and guardians are, who controls the trustee if it is a company and tax and duty implications if property is to be moved out of the trust to another entity.

These issues are a reminder that when setting up the farm and its business, to do so with one eye to the future and the possibility that one or more of the business founders will pass on whilst the business is operating. On this, it is important to remember that for a partnership, where there is no written partnership agreement dealing with the situation, the death of a partner forces the partnership to end. This may also result in the partnership bank accounts being frozen.

Conclusion

If you are going to come out of this article with one takeaway, then let it be this: The best way to ensure the orderly and peaceful succession of your assets after your retirement or death is to look and plan ahead.

This is not the type of thing that you leave to the last minute, and it pays to build your agricultural business with its inheritor in mind, especially when you are not the sole proprietor.

I realise that the topic is large, but that’s because its complexity makes it hard to unravel all the minutia that comes with it.

So, if you have questions, or simply would like to learn more on the subject, I’ll be doing seminars on the subject of succession planning throughout the lower South West from May 27th through to the end of July.

05 Mar, 2024
Find out what we have been up to and recent events in our March 2024 newsletter .
20 Feb, 2024
The Human Rights Commission may take action against employers who fail to actively eliminate sexual harassment, discrimination and victimisation in the workplace, as part of a positive duty reform. While the reform itself was introduced under the Sex Discrimination Act in 2022, a change was put in place last December - and every employer, including those in the agricultural sector, is affected. This change has provided the commission with new powers to investigate and enforce compliance with positive duty and investigate organisations or businesses where it "reasonably suspects" non-compliance. What does this mean for shearing contractors, sheep producers and other primary producers? Speaking at the WA Shearing Industry Association (WASIA) general meeting last month, Bailiwick Legal solicitor Matilda Lloyd said the enforcement power involved inquiries and investigations similar to WorkSafe. She said a complaint did not have to be made for an inspector from the commission to visit and look over a workplace, and see if there is any kind of sexual harassment occurring. "The commission looks at policies and procedures, and essentially you need to be able to demonstrate that you're compliant with this positive duty. "When you think about it in the context of a shearing shed, it is the safety checklist you have in place for when people enter the shed. "Those are the things you need to consider with sexual harassment as well." Ms Lloyd said the commissioner never had the power to conduct an investigation before and, as such, practically how it was going to work was an unknown. "We don't know whether they're going to be coming out and doing regular inspections, what those inspections are going to look like in terms of time or how thorough they are going to be, " sh e said. "They need to be thought of the same way as a WorkSafe investigation, whereby it could happen at any point whether a complaint is made or not. "Investigators will expect employers to show that they are actively trying to eliminate this form of unlawful conduct." If an inquiry occurs, what will happen? If an employer wasn't taking the correct measures to stop sexual harassment, discrimination and victimisation from occurring, they could be issued a compliance notice. Ms Lloyd said if the notice wasn't adhered to and an inspector returned, they could apply to the Federal Court to have that positive duty enforced. What is positive duty? Ms Lloyd said a positive duty was a legal obligation on an employer or person conducting a business or undertaking to take reasonable and proportionate measures to eliminate unlawful behaviours in the context of work, workplaces and working relationships. In the case of shearing contractors, sheep producers and other primary producers, she said that obligation was on the employer and applied to all staff, workers, contractors, customers and people entering, for example, a shearing shed. She said the obligation was "very broad" and applied right across the board. "Enforcing positive duty is pretty straightforward in terms of the employer, but when we look at the other parties involved it is extensive, " Ms Lloyd said. "When we are talking about sexual harassment in the workplace we are talking in the shed and in a vehicle on the way to work or another shed. "It is also offsite, so if you are having work drinks at the quarters or wherever afterwards - that's also a workplace within the definitions of the act. "The obligation applies across the board in all of these circumstances. "And also applies to visitors, so if you have farmers and they bring their wives, it is anyone coming into that shed or environment." In the context of positive duty, what do contractors need to do? Firstly, employers need to understand what sexual harassment, sex-based harassment, discrimination and victimisation is. Ms Lloyd said employers were responsible for leading their team, so it was important to understand what the laws were and how they affected not only them, but their employees. "When we talk about sexual harassment we talk about unwelcome conduct that is of a sexual nature or requests for sexual favours, touching, requesting dates and so forth," she said. "Whereas sex-based harassment is harassment that is targeted at a particular sex. "This could be making sexist comments about a woman because she's a woman or making sexist comments about a man because he's a man. "Then victimisation is about targeting someone because they've made a complaint." Ms Lloyd said a conversation then needed to be had to educate employees, whether that be face-to-face, by Whatsapp or having it displayed in the shed. She said there were resources and guidelines available through the Human Rights Commission, which helped with this. "Have that conversation - as an employer understand what sexual harassment is but then talk to your employees and be serious about educating your employees, " Ms Lloyd said. "It is about actually having that conversation and then thinking about what material can be given to them. "The whole point is to make it easy, so people understand. "Then it goes into training and support - is there someone in your team people can talk to?" The seven standards The commission has released guidelines for complying with the positive duty under the Sex Discrimination Act 1984. The guidelines are centred around seven standards - leadership, culture, knowledge, risk management, support, reporting and response, and monitoring, evaluation and transparency. Examples of practical actions that organisations or businesses can take to meet each of the standards are set out in the guidelines. Ms Lloyd said, as each business is different, it depended on how big a team was, what was going to be practical and cost-effective in the workplace. She said the commission would look at the different standards if there was an investigation or inquiry. How often do employers need to talk to their team about this? Ms Lloyd said it should be looked at similarly to safety or work related issues, whether that be a toolbox or regular meeting once a week or every couple of days. She said if a contractor was starting a new job or visiting a place they hadn't been to before, it was about having that conversation upon arrival. "When everyone's preparing for their first break, sit down and have a chat about general safety as well, " Ms Lloyd said. "That's the first step, and then follow it up a month later when you start a new shed. "It is about consistently and actively taking measures to create a safe space. "It seems obvious that once you've gone through your checklist you then talk to the people coming into that environment, who are your workers, and alert them to what you have found. "Similarly, with positive duty, a checklist is proof that you are doing the right thing if you are audited." Does insurance cover sexual discrimination cases? Having insurance does not diminish positive duty, it just safeguards employers against potential damage and loss against their business if they are sued. Ms Lloyd said sexual discrimination cases, which travelled through the Federal Court, were not cheap and often have adverse outcomes from an award of damages perspective. "If we talk about Work Health and Safety, as you know, that is a serious issue you have to take onboard and consider, " she said, "And that's the way I think employers need to frame their conduct when talking about and implementing measures to prevent sexual harassment, discrimination and victimisation." Is an employer covered if they have put everything in place, but those rules are still broken? Ms Lloyd said an employer would be protected if they have been able to eliminate as much as they can with the resources available to them. She said it was important to remember sexual harassment and discrimination is unlawful conduct. "In terms of positive duty, by taking all reasonable steps and measures given the resources available to you, you will be able to mount a solid defence against any claim. "If you've done your duty positively and it can be demonstrated that you've exercised your role in appropriate fashion, then that will be solid defence." For more information on the positive duty reform and seven standards, go to humanrights.gov.au
14 Dec, 2023
See what's been happening and current topics of interest in our December 2023 newsletter .
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