How a Family Charter can help farm succession plans

Clearly communicating ambitions and outlining them in a Family Charter can be key to improving the succession process that often proves so difficult for farmers.

The rightful change in recent years away from the assumption that the eldest son would inherit the farm has led to different challenges, says Gary Markham, director of farms and estates at accountant Land Family Business.

Many families struggle with the idea of splitting the farm and its assets between every member of the next generation, and still maintaining a viable business.

See also: Succession planning expert Q&A: What farmers should know

However, it is important to remember that fair does not always mean equal in this scenario, says Mr Markham.

A lack of trust between generations can lead to clashes about what changes to make and risks to take, as well as who makes the decisions and controls the finances, says Russell Reeves, partner at solicitors Thrings.

“It is important for farmers and their children to have open and transparent conversations about the future,” he says.

“Typically, the less communication that takes place, the more likely there will be a dispute. If everyone is aware of their position and considers it fair, then it reduces the chance of a dispute in the future.”

What is a Family Charter?

One way to confirm plans and clarify positions is to create a Family Charter.

This is a document setting out a statement of intent for the future of the business. It should be agreed and signed by all members of the family, including those not currently involved in the business but expected to become so, or potential beneficiaries of wills.

It typically sets out:

• How the family wishes the farm to be run
• The family’s goals and the long-term strategy for the farm
• The family’s relationship with the farm
• How the family members should behave towards each other in the context of the farm.

The process of creating the charter, and how long it takes, will depend upon the individual family, what they are trying to achieve, and the complexities of the business, says Mr Reeves.

“A relatively typical farm, say owned by two parents with two children working in the business, may only take one meeting or so,” he says.

“A larger farm, perhaps with multiple owners at different generational levels, different sites and diversifications, may be more complex and take longer.

“It is important the adviser fully understands the business, what assets and income are available, and the individual family members’ concerns and aspirations.”

A mediator, though not usually necessary at this stage, could be helpful if the family is finding it difficult to agree the way forward.

Mr Markham says useful advice would come from someone with legal and tax experience, as well as an understanding of interpersonal relationships and farming families.  

How can it help with succession?

A Family Charter lets everyone involved know where they stand, marshals their thoughts and enables them to plan for their future, says Mr Reeves.

“It can provide direction and reassurance, and importantly reduce conflict and the chance of claims between family members later down the line – these include claims that someone was ‘promised’ the farm, known as proprietary estoppel claims,” he says.

“Where there are trust issues, for example about whether a farming child will have the necessary professionalism or ability to run the farm to a certain standard, a Family Charter could set metrics for that child to achieve. This could be if the child does X, then they will receive Y –  ensuring accountability.”

A charter can also set out how management decisions should be made or what should happen to the running of the business if someone loses capacity.

It must work with the family’s most up-to-date set of legal documents, such as a will or partnership agreement.

“There would be little point in agreeing a Family Charter if the legal paperwork did not carry its intentions into effect,” says Mr Reeves.

“Family Charters are not yet common but, particularly as the amount of farm succession claims grow, I envisage the demand for them increasing.”

Case study

A husband and wife ran a successful 500-acre mixed farm business under a partnership agreement that dated back to the 1980s. They had three children: one employed by the partnership; one who did not farm; and one who did not farm but lived in a farm cottage with her family.

The parents’ wills, which had also been made in the 1980s, left the farm to their three children in equal shares.

The farming son had worked for many years for low pay, but he received expenses, plus a house on the farm where he now lived with his wife and children.

Keen to put their affairs in order, the parents sought advice. It was clear that the partnership agreement was out of date and that the son should be a partner as he was running the farm.

The parents wanted to treat all of their children fairly but recognised that their farming son would need sufficient land to be able to farm after their death. They thought the farming son was expecting to inherit the farm, but had tried to steer clear of those conversations.

It became clear that the farming son had indeed assumed he was inheriting the farm and said his father had promised this on several occasions.

The parents wanted assurance that they could remain living in the farmhouse and have input on any big decisions.

The two other children did not mind their sibling inheriting most of the farm, so long as they could share in any profits (at a lower level) and he agreed not to sell the farm when their parents died. They also wanted to ensure their children could have the opportunity to work on the farm in the future, as it had always been intended that the farm would serve future generations.

A Family Charter was drawn up recording these views and was signed by all parties. The family were pleased for the opportunity to discuss and share their views and felt that the transparency of the Family Charter gave them reassurances over their futures.

It also reduced the chance of the farming son making a proprietary estoppel claim upon the parents’ death.