29/08/2016

Farm succession requires the very thing that farmers hate the most – lots of discussion.

With over 135,000 farm businesses across Australia, it is not uncommon to hear about families where one child has been promised the farm by their parents in exchange for the child working on it, often for no or little wages. Some of them even give up lucrative careers to return to the farm to assist their parents.  

Then, as life would have it, parents either renege on their promise to transfer the farm or pass away without their Will reflecting the arrangement.

What happens then?

Where mum and dad renege, provided the child is able to substantiate their claim that a promise was made, they can seek to have it enforced by going to Court and asking for an order that:

-    the promise be fulfilled by the parents (claim of estoppel); and/or  
-    the parents hold the farm on a constructive trust for the child.

Depending on where the matter is being heard, the financial circumstances of the child may or may not have any bearing on the likelihood of success of either of these claims.

If however the parents have already passed away, a family law provision claim in court is likely to be the only option available to the child.

Again, depending on the state or territory where the case is heard, the Court will have varying requirements that must be satisfied before it makes an order that the farm (or a bigger share) be transferred to the child.  For example, in Western Australia, the Court will look at factors such as the financial position of the child making the claim compared to the other claimants, the relationship of the child with the deceased, the size of the estate, and to a smaller extent, the promise made by the parents.

While there are remedies available to the child to implement the broken promise, victory is likely to be bitter-sweet in the face of the financial and emotional price they will pay in the process. And that is not to mention the risk of irrevocably destroying family relations with the involved siblings and parents.  

How can you avoid this situation for your clients?

All of this drama can be avoided with a considered and implemented succession plan that means the passing of the property to the next generation is effected in a fair and equitable manner, all concerned family members have certainty about the future, and most importantly, family relations are preserved.  

The process is unlikely to be easy or cheap for your clients but will prove worthwhile in the long-term. 

Even if the child trusts the parents to keep their word or the parents believe their children will be able to amicably sort it all out after they are gone, avoid the risk and get your clients to put it all on paper now while everyone is on good terms. The reality is that promises get broken and siblings turn sour.

How do you navigate your clients through the process?

When putting a plan together aim to evoke a team approach to the process from all the family. Family members will need to clearly communicate among each other and be ready to compromise and recognise the needs and values of different generations. All of this may be difficult for usually taciturn farming people but without it the risks will be much higher.

Also keep in mind that the plan should be regularly reviewed and updated as circumstances change to ensure it continues to reflect the family’s arrangement.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.