Succession

Succession Planning and Legal Structures
 
Succession planning is highly relevant and topical in New Zealand’s rural industry.   
 
Implementing succession planning poorly is risky and can have negative consequences.
 
Leaving farming assets to beneficiaries in your Will is not usually an effective succession plan. Owning farming assets through other legal structures like trading trusts, can complicate asset distribution on death.
 
Effective succession planning requires a staged process.  Without carefully ordered steps towards the desired outcome, there can be negative consequences.  The legal structure for ownership of assets may be chosen for different reasons, for example tax purposes.  Having a trading trust that owns all the assets has a number of risks that need to be fully understood.
 
The effectiveness of a succession plan is driven by ensuring assets are owned through the right legal structure. 
 
Ignoring the legal structure early on in the process can be fatal to the proper implementation of a succession plan.  This is particularly so when the existing legal structures do not properly support an appropriately staged process.  Having to restructure can incur significant cost, such as tax on depreciation recovered and tax costs for the transfer of livestock.  If those costs are significant, they will be an important consideration and may prevent the restructure due to the owners not wanting to incur those costs.
 
To ensure a smooth transition of the business to future generations, early in the process, rural families must have discussions to determine their priorities and vision for the future, but a resilient legal structure is critical.  Implementation will take a number of years, so the process should start early.
 
BlackmanSpargo has been involved in creating and implementing successful succession plans for farming families for over 20 years.  Please contact our experts for further input and guidance.