Farming and the law
Farming and the law is a topic close to the heart of our firm Principal, Kylie Mildwaters, as she was raised on a farm in the Copper Coast which her brother now continues to farm.
Both of her parents come from farming families and so farming is part of her heritage. This gives her a unique ability to understand the issues facing farmers.
Indeed, she helped her own family transition through the stage of her parents transferring their interests in the family farm to her brother so that he could continue the family tradition of earning a living from the farm.
Balancing the needs of each generation on the farm
As children grow up and start to have their own families, the future of the farm must be considered as well as the financial security of the younger and older generations connected to the farm.
Conversations need to be had between all the parties concerned so that no-one is left disgruntled or unsure of their future.
Farming and the law
The older generation may be concerned about the safety and future of the farm when considering the devastating effect that a marital breakdown could have on the farming enterprise.
The other concern that farmers sometimes have is that one of their children who have not chosen farming as their permanent vocation and career, decide to make a claim against the estate of the older generation when they pass away. The consequence of this is often that the farm has to be sold as it is no longer a financially viable enterprise.
There are numerous ways to prevent this from occurring including:
- transferring the farming land into a discretionary family trust as this ensures that the farming land never arrives in any deceased estate and that better protection is afforded the farming land in the event of a marital breakdown
- transferring the farming land into the joint names of you and the intended beneficiary of the farming land if avoiding a claim against your estate by a disgruntled child is your only concern.
Transferring farming land into a discretionary family trust has other benefits too which are:
- ease of transfer of control of the farming land through the generations
- no stamp duty or capital gains tax when transferring control of the farming land through the generations
- flexibility in terms of distribution of income of the trust between family members.
For more information about Trusts, refer to the relevant section on this website.
The Younger Generation
Once a person has reached their mid to late 20’s, they become concerned about their financial future and their long term prospects on the farm. These concerns are heightened when that person becomes secure in a long term relationship or gets married and has children. That person is then responsible to make sure that their family is financially secure.
Clearly it is not wise or sensible to be transferring control or ownership of farm assets too early. Financial security for the younger generation can be achieved in many other ways.
One option is that the farm could pay for life insurance for the younger generation on the farm to ensure that if they passed away, their family would have sufficient funds to buy a house to live in and to have adequate income to meet the costs of raising a young family.
The other option is to combine life insurance with the purchase of an investment house in the joint names of the younger generation. If they were to live to a ripe old age, the investment house could form a type of superannuation for them. However, if the younger generation were to pass away, this investment house could provide a place for the survivor of them to live and the life insurance proceeds could provide the income needed to raise the children.
For the Younger Generation, the main concerns are financial security, particularly if they have a young family, and direction for their future. Even if it is not yet time to transfer control or ownership of farming assets, it is worth discussing what the plans are for the future, so that the Younger Generation can make plans of their own and work towards building their life on the farm.
The Older Generation
When the time comes to relinquish ownership or control of the farming assets, either in part or altogether, appropriate measures must be put in place to ensure the financial security of the Older Generation.
This can be achieved in numerous ways such as:
- the farm (being the Younger Generation using the farm as security and using the farm trading entity to provide the funds) purchasing a house off the farm to be registered in the joint names of the Older Generation
- the farm providing a guaranteed income for life to the Older Generation, with that right being secured by a mortgage registered over the farming lands owned or controlled by the Younger Generation
- the farm providing an agreement to pay a lump sum to the Older Generation as and when required, such agreement being secured by a mortgage registered over the farming lands owned or controlled by the Younger Generation
- the farm providing a guarantee to pay for any aged care accommodation that the Older Generation might require
- the farm setting up a superannuation fund if the age and working status of the Older Generation still allows, to provide an income to the Older Generation when they retire.
We can help a farming family talk through the issues facing them and provide practical and sensible advice to all parties involved. We can help a farming family make any farming rearrangements that they wish to make when they are ready to make them. Let us know if you find yourself considering how to protect the farm and balance the needs of each generation on the farm as we would be pleased to provide you with the advice you need.
Making sure Wills are up to date all the time
The long term success and viability of the farm can be destroyed in an instant if a farmer passes away leaving no Will or leaving a Will that is out of date.
Consider a farmer who has made a Will when his children were infants, leaving the farm equally between his children in the event of the death of both he and his wife. Fast forward the clock by about 30 years and his son is home working on the farm and Farmer Senior has 3 daughters who are all financially independent and living off the farm. Farmer Senior doesn’t get around to updating his Will and he is killed in a car accident with his wife. He leaves behind a Will that splits everything equally between his 4 children. His son is left devastated as there is no way he can afford to buy out his 3 sisters’ share in the farm so he is forced to sell the farm which has been in the family for generations.
The Wills of the Younger generation are also important too to make sure that the family farm is preserved while maintaining financial security for the Younger Generation.
Consider a 30 year old farmer who made his Will when he married at the age of 25, leaving everything to his new wife. At the age of 29, he buys a parcel of farming land in his own name and borrows money to fund the purchase which is secured by a mortgage registered on the property. He doesn’t get around to changing his Will and he is killed in a car accident at the age of 30. His distraught wife is not only left to deal with her grief, but with a parcel of farming land that she has no use for and the requirement to make repayments on the loan which she can’t afford now that she has no income coming in from her husband. Hopefully the Older Generation will step up and help, but our young farmer should have made sure that his wife wasn’t left to rely on his parents for her financial security.
We cannot stress enough the importance of every adult member of a farming family having an up to date Will all the time.
Other farming services we offer
We offer many other legal services to our farming clients such as:
- sale and purchase of farming land whether by tender or private treaty
- farming leases
- sharefarming agreements
- residential tenancy agreements for farm houses occupied by private tenants
- preparation of agreements for the business operations of farmers including partnership agreements, trusts, joint venture agreements, supply agreements and service agreements
- subdivision services for farmers wishing to subdivide their land
- preparation of other documents affecting land such as easements for a right of way for a driveway
- establishing new trading entities for farmers such as a company.
If you are a farmer and in need of legal services, then we would be pleased to meet with you and discuss your requirements. Contact us when you are ready on 88 21 2199 to arrange an appointment.