The Farm Family – A Guide to Transferring the Family Farm

James McDonnell

The farming family can be a complex structure. In some cases, there could be up to four generations living on the farm. Some of these may be working together in an informal way and generally with the ownership with one generation.

Traditionally in Ireland, the farm may be given to one child with other children/siblings receiving a site and or an education as a method of ‘setting up’ the others. In some cases, the family farm might be divided between siblings or siblings might farm together as tenants in common. These structures often work well for a number of years until there is a change to the family circumstances as a result of a death or an addition to the family structure.

In Ireland, we look upon the ownership of land differently to other countries. ‘The Field’ by John B Keane demonstrates this to some extent. Purchased land might be looked on differently to land that has been in the family for generations. Some have the attitude that we only have the use of the land while we are alive and must pass it on to the next generation in better condition than we received it. In other countries when the time comes to retire, the farm is often sold to the next generation to create a retirement lump sum. This sale could be to a family member or on the open market to a neighbour.

Fair and equal shares

Farmers are seen as a wealthy sector owning a lot of valuable assets; unfortunately, due to the nature of the enterprise carried out the cash returns on an annual basis are often very low.

Where there are a number of children to be ‘looked after’, there is sometimes an expectation that the farm should be divided equally in monetary terms, meaning if one child is getting the farm a cash payment must be made to other siblings. This system could put the farm out of business as the debt carrying capacity of the business could be very low. So how then can a parent treat all the children fairly? Fair may not always mean equal. Providing one child with a decent education and another with a site and a third with the farm may be a fair result. The child getting the education may end up with a better salary than the farmer.

What is fair? Is a fair share an equal share? It all depends on the situation. Here are some questions that you should discuss as part of the process of figuring this out.

• How large is the farm and what is the extent of the farm business?
• How many siblings are to be catered for?
• What are the circumstances of the siblings? (in education, emigrated, working, etc)
• What long term support is required for family members?
• What is the income generating capacity of the farm?
• What other assets are part of the succession plan?
• How are the parents to be looked after?

Example Situation

• Farm 80 acres, with a 30 cow suckler herd and selling weanlings
• The farm is valued at €800,000 including all stock, buildings etc.
• Parents aged 64 and 66
• 3 children (Paul 34, Mary 30 and Peter 28)
• Paul is interested in farming, living in separate house on the farm, working off farm and helping on the farm
• Mary has been educated and has a good job & house with large mortgage
• Peter has a good job, lives at home and is about to get married
• Nursing home care has not been discussed

Parents’ Expectations:

The parents would like to treat all the children fairly. In this situation, it does not make sense to divide the farm due to the scale of the enterprise. Paul is the only child interested farming the land. The parents both qualify for the contributory pension and are happy that this will provide an adequate income for the medium term. They feel that all 3 children have been educated equally but would like to give some help to the other children that will not be farming. The parents would like to stay in the farmhouse for their retirement but have not ruled out a house swap with Paul as this would suit farming operations better.

Peter’s expectations:

Peter would like a site for a house on the farm.

Mary’s expectations:

Mary would like some help with the mortgage. The parents would like Paul to give Mary €150,000 as part of the succession plan. This however is causing a problem.

Paul’s situation:

Paul has a current mortgage of €150,000 and is willing to swap houses with the parents and continue to pay this mortgage; this mortgage is a struggle at present. The repayment capacity is not in the farm business as it stands. The farm also needs investment of €80,000 to update the facilities. Paul believes the only option to do this is to sell some land.

Other Expectations:

The parents may need home care in the future. The younger siblings think that Paul should ‘look after’ this as he got the farm. Paul is unaware of this. This situation requires further family discussion and the end result will more than likely mean that the assets are divided fairly but not in equal shares.

The best solution in this case is to have an open conversation between the family members to arrive at an agreed position. This may need to be facilitated by a third party.

The Retired Farming Couple

The average person is now expected to live to their mid-80’s, giving a potential retirement period of 20 years. In many cases, the parents are not ready to retire, but the successor is reaching the age of 35 when the Stamp duty exemption runs out. This sometimes creates the problem of trying to generate an income for two families from a small average sized Irish family farm.

Once the retiring couple reach the ‘pension age’, this provides some additional income into the system, but this may not be enough depending on the circumstances of the retiring couple. While we would all love to spend our last days in the home, it might not always be possible for a family to provide the level of care that may be required. Hiring in help to work in the home can be very expensive, so too are nursing homes. While the ‘Fair Deal Scheme’ is available to contribute to these costs, it ultimately puts a cost against the estate of the deceased. It is therefore important that a family discussion on how the retiring couple are to be cared for, and who will provide the money and/or time to for this. This agreement should be built into the succession planning process so that potential family conflict can be avoided in the future.

Farm Partnerships are another option for those that wish to slow down, bring a child into the business in a formal way, and complete a gradual handover. This method also allows the farm income to be shared depending on the circumstances. The DAFM Registered Farm Partnerships have become a very popular method since their introduction. They were initially aimed at dairy farmers but widened to all enterprises in 2015.

Policy

Both the Irish government and the EU have land mobility / farm family support structures built into policy. The government of Ireland largely dictate the tax policy; part of this policy is to encourage early transfer of land to a younger generation.

Stamp duty exemptions are granted to those who start farming before the age of 35 and have a certain minimum agricultural education. Agricultural relief can be claimed against Capital Acquisitions Tax and the retiring parent can claim Retirement relief against Capital Gains Tax. (see chapter 4 for further details).

Although in recent years there has been no specific financial payment to help with the costs of transfer, a new incentive introduced as part of the CAP is the Complimentary Income Support for Young Farmers. There is also grant aid available for both setting up DAFM Registered Farm Partnerships and getting Succession Advice.

Mediation

Mediation is more often associated with work related disputes where a union and a company are trying to resolve a dispute. It can also be used in succession planning. It is a voluntary process that can be used to help parties to address their concerns and issues in a confidential setting. This can be successfully used where the family structure is complex and where any of the parties has any concern. Mediation is a process in which an impartial and independent third party facilitates communication and negotiation and promotes voluntary decision making by the parties to a dispute to assist them to reach a mutually acceptable solution.

Mediation can be useful in the following circumstances:

• When someone is about to retire
• Before a new member joins (marriage or partnership)
• After an unplanned event (sudden illness, death, marriage breakdown)
• There is no interested successor or obvious successor
• Normal family communication has broken down
• A change is farming system has occurred or is needed.

The mediator facilitates discussion and finding a solution, however the solution may also have taxation and/or legal implications, so from this point of view, you may require your solicitor/accountant/farm adviser involved also in the process.

The above is Chapter two from A Guide to Transferring the Family Farm. This booklet provides essential information on taxes, legal issues, collaborative farming options, pensions and education issues relating to farm transfer.

Download a copy of A Guide to Transferring the Family Farm