Balancing Interests: Navigating the Challenges of On-Farm and Off-Farm Children in Farm Estate Planning

Farm succession planning is one of the most crucial and emotionally charged aspects of running a family farm.

For farming families on the Yorke Peninsula, there is a strong desire to achieve a “fair and balanced” distribution of assets among children—whether they are on-farm or off-farm.

However, this comes with immense challenges, as I’ll discuss in this article by digging into the complexities of the matter, highlighting the emotional and financial dynamics at play, and offering practical advice on achieving a balanced approach.

But before I go any further, I need to be very clear. I will not be arguing for a FAIR distribution of assets. This is not because I don’t believe in fairness, it’s simply because the term “fair” has no standing under the law.

That’s why in this article, you’ll notice I deliberately avoid using the word, fair, despite you and I using it when we discuss matters in daily life.

And I admit, when courts hand down rulings on any matters, fairness is how the outcomes are judged in the “pub test”.

As your lawyer, though, it’s my job to advise you that it is a waste of time arguing on that basis in court or in legal documents.

So, instead, I will focus on terms like ‘equitable’, ‘balanced’, and ‘appropriate,’ which are more aligned with legal principles and considerations when discussing the distribution of farm assets among children.

I’ll explain this more in a later article. For now, let’s get on with considering the challenge of distributing farm assets between on-farm and off-farm children. For the record, I happen to be the latter, but I won’t let that skew this article.

The Dynamics of On-Farm and Off-Farm Children

Traditionally, farms in Australia, including those on the Yorke Peninsula, were often passed down to the eldest son. This practice has been shifting, with more emphasis now placed on recognising the contributions of all children, regardless of gender or involvement in the farm.

On-Farm Children

• Historically, the eldest son was typically expected to take over the farm. This has led to a higher number of on-farm children being male.
• Many young people have left rural areas for urban opportunities, resulting in fewer young individuals staying on the farm.
• Despite these changes, a significant number of farming families still have children who live and work on the farm.

Off-Farm Children

• Economic challenges and the lure of diverse career opportunities have driven many children to pursue careers away from the farm.
• Off-farm work is common, with family members often seeking additional income to support the farm financially.
• The expectation for a “fair share” of family assets has increased among off-farm children, as the value of farming land has skyrocketed, necessitating even more careful consideration to asset distribution plans.

Traditional vs. Modern Approaches to Asset Division

Traditional Approaches

• Traditionally, farm succession favoured the eldest son, often leaving other children with smaller portions of the family wealth.
• This approach aimed to keep the farm intact and operational, avoiding the fragmentation of farm assets.

Modern Approaches

• In an attempt to achieve financial viability of the farming operations while offering a balanced share of assets to off-farm children, modern succession planning emphasises appropriate distribution of assets but not necessarily equality.
• This shift reflects broader societal changes and recognises the diverse contributions and needs of each family member.

Challenges in Balancing Fairness and Viability

As you can see, dividing farm assets is not straightforward.

The main challenge lies in balancing the need to maintain a viable farming operation with the desire to treat all children as equitably as possible.

Viability of the Farm

• Maintaining the farm as a viable business is critical. Dividing the farm equally among children may render it non-viable, especially for smaller farms. As such, on-farm children will likely receive larger shares of farm assets to make sure the farm remains sustainable.

Equitable Compensation

• Off-farm children can be compensated with off-farm assets or financial arrangements, ensuring they receive a share of the inheritance.
• This approach aims to balance the financial needs of all children while maintaining the integrity of the farm.

Practical Advice for Achieving a Balanced Approach

To achieve a balanced distribution of assets, it is essential to carry out careful planning and consideration. Here are some practical steps:

1. Open Communication

• Begin conversations early and involve all family members. Discussing expectations and concerns openly can prevent misunderstandings and conflicts later on.
• Transparency about the family’s financial situation and the reasoning behind certain decisions helps build trust and understanding.

2. Professional Guidance

• Engage professional advisors, such as lawyers and accountants, who specialise in farm succession. Their expertise can help navigate the legal and financial complexities.
• As professionals, we provide objective advice, ensuring that all decisions are legally sound.

3. Consider Contributions

• Recognise and value both financial and non-financial contributions of each child. On-farm children often contribute labour and management skills, while off-farm children may provide emotional support or financial assistance.
• Legal frameworks consider these contributions when determining distribution of assets.

4. Future Needs

• Assess the future needs of each child, including the financial security of retiring parents and the viability of the farm for the on-farm child.
• Ensure that all children have a secure financial future, whether they remain on the farm or pursue other careers.

5. Customised Succession Plans

• Develop a succession plan that addresses the unique needs and contributions of each family member.
• This may involve transferring control of the farm to the on-farm child while providing off-farm assets or financial compensation to other children.

6. Legal Provisions

• Include clear legal provisions in the succession plan to prevent disputes. This can include buyout options, life insurance policies, and agreements on how to handle potential conflicts.
• Legal mediation can help resolve disputes and ensure that all parties feel their concerns have been addressed.

Case Studies and Practical Examples

To help you reflect on your situation and give you some fresh ways of thinking about your farm succession planning, here are some cases we’ve been involved with at Mildwaters Byrth Lawyers & Conveyancers.

The Need for Open Communication: Avoiding Assumptions

We worked with a female client in her 50s who expressed her frustration that her parents, aged in their 70s, had not spoken at all about how they planned to deal with their farming land when they pass away. She shared the discontent and rumblings between her and her siblings about what their parents should or shouldn’t be doing—tensions that simply wouldn’t exist if they all knew their parents’ intentions.

She mentioned that, because the farming land was worth so much money, she and her siblings believed they should each get a “fair share” given that none of them are farming.

In her view, her parents should not have been giving any special treatment in their wills to relatives or third parties who had been working the land for years, because she believed she and her siblings should have received the benefit of the full market value of the land.

The Consequences of Secrecy: Unintended Family Conflict

We also worked with a farming couple in their 60s, where the husband’s parents were very private about their affairs.

They simply did what they thought was “right”, without proper legal advice or keeping proper records. They structured their affairs in ways they deemed appropriate and had their children sign documents without fully understanding what they were signing.

After the husband’s parents passed away, our clients and the off-farm siblings became embroiled in arguments that should never have occurred. Two of the off-farm children are now claiming that their brother duped them and tricked them out of their rightful inheritance, even though he did nothing of the sort.

This unfortunate situation arose because money, wills, and private affairs were just not discussed in that generation. It is heartbreaking to witness such a loving family deteriorate into suspicion, jealousy, and greed.

The Impact of Uncertainty: Pressure on Family Relationships

We can recall numerous families we have acted for where the farming son in his 20s or 30s is trying to make his way in the world, while his grandfather, aged in his 70s, still hasn’t handed over any level of control to his son, who is now in his 50s.

We have seen this occur when the grandfather refuses to discuss succession planning beyond vague terms.

This failure to engage and plan for the future creates uncertainty for all family members and can place enormous pressure on marriages and relationships.

For example, a wife may be rightfully concerned about what would happen if her husband died, leaving her with nowhere to live and no financial security.

We have observed this type of pressure gradually erode family ties, leading to the irretrievable destruction of relationships between siblings, spouses, and generational family members.

There are many solutions to these types of problems, but they can only be applied if families come to the table to address them.

Lifting the Burden: The Relief of Proper Planning

We have had farming clients come to our office, expressing frustration about not knowing how to deal with their assets fairly between their children.

But, after two hours in our office, they leave, feeling as if a weight has been lifted off their shoulders.

Sometimes it’s just a matter of talking through a client’s concerns, working out what options are available, and coming up with a solution that works for everyone.

The Importance of Asset Structuring: Avoiding Costly Legal Battles

It’s not just a matter of setting out your intentions in your will.

When an asset of significant worth is included in the estate, it’s useful to consider how to structure the ownership of that asset prior to death. This helps avoid claims from any child or other entitled party who might feel they did not receive sufficient entitlements in the will.

For instance, we had a client in his 70s who had been working the farming land since he left school, while his mother, who lived to a ripe old age, owned half of the land.

She allowed her son (our client) and his family, along with their children and their families, to work the land for very little in return.

When she passed away, the farming land was still in her personal name rather than in a trust.

As a result, the off-farm children made a claim against her estate, which forced our client, at the age of 70, to pay out a significant amount of money to his sister to satisfy what the court would otherwise have ordered.

This outcome was never intended by our client’s mother, but it happened because the asset’s ownership wasn’t structured in a way that could have avoided it.

Conclusion

Balancing the interests of on-farm and off-farm children in estate planning is a complex but essential task for farming families.

The emphasis should be on a balanced distribution, considering each family member’s contributions and future needs.

By engaging in open communication, seeking professional guidance, and developing your succession plan, families can navigate these challenges successfully.

Remember, the goal is not just to divide assets but to ensure the long-term sustainability of the farm and the financial security of all family members.

For farming families in the Yorke Peninsula, the stakes are high, but with thoughtful planning and a balanced approach, it is possible to achieve an equitable outcome for everyone involved.