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Department of Agriculture and Food Systems
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Agribusiness Perspectives Papers 1997/98Paper 6/3 Putting The Family Back Into The Family FarmPaper 3 (of a series of 6 papers) Geoff Tually [Paper: 1 | 2 | 3 | 4 | 5 | 6 ] The family farm is the preferred way of providing the cash needs for the family and to provide the basics for achieving the family goals. Wills, traditionally have been used to transfer ownership of a persons real and personal assets to others. However, Wills should be used to protect the farm family business and assist in the achievement of family goals. A Will will therefore change in content over an individuals life time. Specific factors that will effect the content of a Will; Relationship between Wills, ownership structure and business plan. 1. Relationship of family cash needs and use of WillsThis relationship changes over an individuals/families life cycle. Figure 1 uses a ten (10) year life span for a Will to illustrate the broad relationship of Wills to changing family cash needs. To provide protection to the family, a Will must change with changing family circumstances, which include: marriage requires a new Will to be prepared;divorce. A new Will should be prepared, if current Wills leave assets to each other, after property settlement; changing from single proprietorship to a trust or partnership, as some assets in current Will will now have changed ownership; when involving children in the farm business, to protect their commitment to the family business and protect a sons or daughters spouses income, used in the farm business (if this is not protected by partnership, trust or company shares). A current Will is very important during a families peak cash needs period, i.e. between 30-45+ years of age. Figure 1: Relationship of family cash needs to the use of Wills (i) Intergenerational involvement model
2. Specific factors that will effect the content of a Willi) Joint tenancy or tenancy in common. Where land (real property) is held by joint tenancy, then on the death of one of the partners, their share goes automatically to the other partner(s). Thus you do not have this land to include in a Will (only the last surviving partner). Where two brothers (or sisters) hold real property as joint tenants and they both marry, then if one brother dies, then his family will have no claim on the deceased brothers share of the land. With tenancy in common each partner is able to include their share in their Will. ii) Ownership vs Controllership of assets. Controllership of assets (business and/or land) is just as important as ownership in achieving family goals. A family trust(s), as owner of farm family assets, allows for controllership of the assets and at the same time protection for the family (provided the trust is designed adequately). Protection for the family members has been transferred from the Will to the trust. Where the business and land are transferred to a trust(s) the content of the Will will decline and basically only include the personal assets. iii) Equitable involvement vs traditional transfer. Equitable involvement (or focus) allows for all children to be provided similar opportunities and encouragement. This contrasts with the traditional transfer of farm family assets. The equitable focus is on business and developing their own ideas and away from inheritance of parents or family assets. Wills need to reflect the chosen focus. Trusts tend to reflect the equitable focus with reduced dependence on Wills. These last two (2) specific factors and Will content can be shown as:
Figure 2 relates four (4) different farm family concern areas and how they need to relate or integrate with each other. This model is based on the farm business and the land having separate ownership positions. A change in the ownership of the business, ie., a change from single proprietorship to a partnership (or a change in the membership of a partnership) as shown in Year 5 of figure 2, will require an updated Will. The system shown in figure 2 needs to be integrated, otherwise family goals may not be achieved, e.g. i) Father operates the business as a single proprietor. Land is owned by a trust. Fathers Will provides, his wife to receive 50% of business; the four (4) children equal shares of the other 50%.The two (2) eldest sons then join their father is partnership in the business, father retains 50% and each son 25% each. Unless the fathers Will is changed, the new partnership arrangement will result in, his wife will now receive 50% of her husbands 50% partnership share of the business, i.e. a reduction of 50%.the two (2) eldest sons now have 25% share of the business, plus equal share with their two (2) younger brothers in 50% of their fathers partnership share of the business. the two (2) youngest sons now to receive 50% less. Family plans have changed and current Will needs to reflect the new situation.ii) Son has been paid wages whilst helping his father manage the family farm over the last ten (10) years and has been told he will get the farm. However, father dies without changing his Will. Fathers last Will provides for the farm to be split four (4) ways, although the son put extra effort (over and above wages received) into developing the farm, believing he and his wife would reap the benefits later. He does not have the money to buy out the other three (3) beneficiaries. Even worse is where the sons wife puts her off farm earnings into the family farm. Cost of family protectionIf each Will cost $2-300 to have prepared (you may prepare your own Will) and you have ten (10) Wills during your life time, then you will spend some $2-3,000 to protect both your family and the family farm business. (In reality the life of each Will will vary and may be as short as 12 months, or even shorter depending on your circumstances). The focus of each Will will always be to keep the family members communicating as a family and the importance of each Will will vary according to:
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