Beware the ‘Claytons’ Succession Plan


Succession planning can be a challenging process, however, if properly addressed, can result in long term benefits, confidence in the future and family stability for all concerned.

Unfortunately the dynamics of the situation may result in the family preferring to deal with the “easier” issues and putting off the “harder “ones to a day that never comes.

The circumstances may be something like this:

Dad is being pressured by the on farm children to undertake the preparation of a Succession Plan.

Mum is concerned that there are not enough off farm assets and is reluctant to let go of the land to the on farm children. She is also be concerned about equality for the off farm children.

The on farm children are looking for some certainty about their future.

The following simple solution may not be the best:

“Kids, your Mum and I have been to see the solicitor and this is what we have come up with. I’ll bring you into the trust as joint trustees and we will start making distributions to you. We will transfer some of the stock into your names but you will have to start securing some of the debt. As for the transfer of the land and how to deal with your brother and sister, we can deal with that down the track.”

In this scenario it may have been better to have not started the conversation. There are too many unknowns:

  • What would happen if the parents pass away and the land has to be dealt with through the estate? Is the Will robust enough to secure the position of the on farm children?
  • Have the parents really made the position of the on farm children more secure; or, in fact, is their position more onerous?
  • What happens in the event of a divorce of one of the on farm children, what is the extent of the entitlements of their spouse? What is the nature of the promises made by Mum and Dad?
  • Who are Appointors of the trust? Who is really in control? What happens in the event of the death of one or more of the Appointors?
  • How are Mum and Dad going to secure their retirement funds?
  • Are the off and on farm children being left in a position of future conflict?
  • What happens if Mum and Dad have a change of heart at some point in the future, for instance, if there was a dispute with their daughter or son- in law?
  • What is going to happen to the accommodation needs of family members as circumstances change?
  • What expenses will continue to be met by the farm?

Succession plans are not a one off event; they are a transition over time. The next generation do not need to receive the property or business up front. It may take many years. What is important, however, is that there is a framework to deal with the intended changes.

Documented future Options to secure the purchase for an agreed consideration build confidence and clarity for the road ahead. The time frame and terms and conditions can be determined and prearranged so everyone knows where they stand.

A Deed of Family Arrangement can detail the many aspects that need to be discussed and resolved. Once executed all family members will know where they stand.

A sound business transition and Succession Plan has many components to it, including, financial, legal and accounting matters that must reflect the needs and aspirations of all participants. There are no shortcuts. All key matters should be dealt with. Establish a clear framework and a blueprint for the future.

Don’t put off the issues that are challenging. Identify, discuss and resolve them while you are still in a position of control. You do not want your legacy to be clouded by conflict and disagreement.

Businesses need confidence to grow and prosper. Ensure that your planning leaves no stone unturned. Seek the advice of a specialist who knows what needs to be addressed and how you can best create positive and sustainable outcomes.