Succession: you can’t avoid it
Succession is inevitable, so starting the process early, communicating well, and taking good advice will help ensure the best outcome for all. James McDonnell tells us more.
Over many years, I have spoken to thousands of farmers on the subject of farm succession, and some themes come up time and time again. So, please don’t think that your situation is unique or unprecedented. The main thing is to get started on the challenges. Your local advisor should be your first point of call.
Retirement Date
“Retiring was the best thing I ever did,” a farmer said to me recently. He explained that he can still do some farming, but without the worry. He does some work for his son, who took over the farm, but doesn’t need to worry about regulations, paperwork, Fair Deal, or paying back farm development loans.
When I started working for Teagasc, I was told that I must retire at 65. That seemed a long way off to me at 23. Many farmers don’t have a planned retirement date.
The average farmer is now almost 60. Many “got into farming” after the death of a parent, with little thought given to retirement years down the line.
People are now living 10 years longer than they did in 1980, so if the farm is to be transferred on death, it is gradually getting later, and the average age of Irish farmers will continue to increase. This is causing concern at Government and EU level, so there are lots of incentives to encourage farm transfer.
Financial Security
Farmers who have paid into private pensions are the lucky ones. There is a much larger group of farmers who didn’t. In most cases, the farm income was too low, and looking after the family was more important than investing in the distant future.
There are options available to you should you wish to retire but find the state pension available to you is insufficient. Contact your local Teagasc advisor to discuss your options.
Farm Incentives
Many incentives in Ireland are financially based, which means they are almost all aimed at the transferee (person receiving the farm). These incentives provide extra income through CAP payments and reduced tax liabilities on receiving a valuable farm.
If you delay the transfer, you may miss out on some of these incentives, resulting in a loss of extra income to the family or a larger tax bill on the eventual transfer. A young farmer is defined as someone under 35 years of age in Irish tax law. A young farmer is under 40 in the EU CAP. This can lead to some confusion, and there are three main taxes and a large number of DAFM CAP schemes to consider.
For example, there is one particular scheme called the Complementary Income Support for Young Farmers. For the average size farm of about 32ha, the benefit could amount to in excess of €25,000. The tax savings could be a multiple of this figure. So it is worth finding out what extra income you could be missing out on.
The “Fair Deal” Trap
Nursing home care is very expensive, and few families can afford it. The Fair Deal scheme is a way of paying for care in a nursing home in that your estate pays for it when you pass on. However, if you do not have any assets, then there is no estate, so the taxpayer funds the care.
There is a catch: any assets moved out of your name in the five years prior to entering the Fair Deal scheme are caught, so your successor will have to pay the bill. There is a cap on what you pay, but you must apply and qualify to avail of this cap. Even with the cap in place, it is still expensive. The rate is 7.5% of the value of your assets for up to three years, totaling 22.5%. This is a sizable slice of a farm should it be required to fund care. The advice here is to make a plan in plenty of time.
The Family Conversation
On average, 1.5 family members attend the transferring the family farm events. Clearly, those who attend will bring information home to be discussed with others.
Effective communication is the key ingredient to successful succession planning. It allows family members to share concerns, decide on options available, and determine what actions to take. It allows for effective planning and helps prevent disputes, misunderstandings, and unnecessary anger.
Typically, when it comes to discussions around succession and inheritance, there are a lot of unspoken assumptions about who is getting the farm and the plans for the future. These are not always explicitly communicated to the people involved.
When communicating on succession and inheritance, it is important to discuss and clarify the three key aspects of how family, ownership, and management will play out, overlap, and change over time or at different points in the future. Some families use the services of a mediator to help.
In my view, a chat with the local advisor is the best place to start, so make that call now and set up an appointment.