Ask Paul: Who should inherit the family farm?

Dear Paul,

I found the inheritance article quite interesting (Ask Paul, June issue). However, I have friends who are in a bit of a pickle in regard to inheritance of the family farm.

One child has worked on the farm and stayed at home to help the parents, even while raising their own young family. Meanwhile, the other siblings have gone off to uni and moved away.

So, the problem is, should the farm be split equally between children and will the son who is still working the farm have to buy the other siblings' share of the farm off them?

It's quite a common problem in rural areas and I would love an article on it with research from lawyers who have had experience in this.

An excellent, but very tricky question Jane.

I grew up in Griffith, NSW. We were 'townies'; my dad was a local doctor. Many of my school friends were country kids, and particularly so when at age 18 I went to live at Baxter college at UNSW, there were a lot of country kids whose parents were farmers where this issue was often discussed.

As I started my working life in personal finance, I also have had many clients with exactly this issue.

In previous centuries, it was typically the oldest son who inherited everything, castles, farmland, titles, the whole lot. Fortunately, we don't tend to have titled lords and ladies passing this on to one child, so for us it is really about fairness.

The starting point is an open family conversation.

I don't think we need lawyers at this stage. With all due respect to my many lawyer friends I suspect this could cause complexity not simplicity. I think the family needs to nut this one. With no kids interested in farming it is pretty easy. All the kids being interested is super challenging, but not common these days.

But with one interested and the others not, I'm voting for the most important thing of all. Fairness and family harmony.

This does not split the farm up, nor force instant debt on the child running the farm.

Once you have decided your family strategy, then a lawyer experienced in rural issues is a very valuable asset. I would be looking to have, in an appropriate tax structure, all the kids as equal owners.

Rural land has exploded in value in recent decades. An unfortunate position would be if one child got the farm, then a few years later sold, possibly for many millions. There is a family harmony disaster!

Fairness says all should have a share. Income from the farm can be dealt with more easily. The farmer doing the work deserves a decent income return.

In your family discussion, you need to also consider the situation of the non-farming siblings regarding owning a home and so on.

This is an emotionally complex conversation. Some will say that the farm should be sold if most kids want to do this. The one who wants to farm then has a sizable deposit and can look at farming in their own right.

Depending on the size of the farm, parts may be saleable. The child running the farm may, in time, be able to buy out their siblings.

I can't agree with one child getting the lot whether they are a farmer or not. I think it is a lengthy family conversation. I think you will come up with a broad structure incorporating fairness.

Then it is off to a lawyer to seek advice and get it documented in your estate planning.

Get stories like this in our newsletters.