Succession and inheritance are complex and protracted processes. The management of these processes is influenced by the personal, social and business values of farmers, their families and the wider community. If not properly handled, the transfer of the farm between generations can result in high levels of conflict between family members and increased financial hardship among farming families. The failure to make timely decisions concerning succession and inheritance can lead to confusion, uncertainty, suspicion, and disharmony and cause deeply damaging divisions both between and among the generations present on the farm.
Our aim in this study was to investigate succession and inheritance in farming in order to improve our understanding of these processes in contemporary farming families in Australia. Basically, we wished to assess the extent to which farm families may be experiencing problems in managing succession and inheritance and to identify and describe the nature and incidence of those problems.
The data used in the study were obtained using mailed, self-administered questionnaire sent to 5000 farmers across Australia in the winter of 1996. The response rate was 28 per cent, providing us with information on a total of 1290 families.
We classified farm families into a set of family ‘types’ which provided a conveniently simple but useful summary of the diversity in the structure of families. The six types (clusters) appear to be at three different stages in the family life cycle. This set of family types was used as the basis for investigating management transfer and inheritance.
The families in clusters one and six are families with young, school age children. The parents of the respondent, or the parents of the respondent’s spouse, are actively involved in the farm business in a relatively high proportion of these families. For most of these families the issues of succession and inheritance are seen as lying in the distant future. Many of these families may feel there is no particular urgency to plan for the transfer of the farm given their age and, especially, given the uncertainty about the directions their children may take as they grow through adolescence into young adults. However, the parents in these families have to consider that they have only twenty to thirty years, on average, to create sufficient wealth through farming to support themselves in retirement.
Some of the families in clusters one and six are, or will soon be, confronted by the need to deal with the retirement or semi-retirement of elderly parents. Approximately 30 per cent of the farms in clusters one and six are supporting three generations. In many of these families the elder parent or parents share in the ownership of the farm. Depending on the circumstances, this may create a problem for those in the older generation who may wish, or need, to claim a pension in the future. Another issue to be considered by these families is capital gains tax. A capital gains tax liability is incurred on property acquired, whether by gift or commercial transaction, after 19 September 1985. While capital gains may not apply in the transfer of ownership from the retiring parents the second generation must allow for the fact that they will have to meet a capital gains liability if they either sell or gift the property to their children.
The families in clusters two and five have adult children who are married. The married children of families in cluster five live away from the farm while those in cluster two live on the farm. The parents in these families are approaching an age where they may be considering reducing their involvement in the farm business. With respect to the families in cluster five, where very few sons or daughters are involved in the farm business, the major issues may revolve around when to retire and sell the family property.
The issues facing the families in cluster two in particular are likely to be complex. Although adult sons are working on the properties owned by these families, sons share in the ownership of the land in less than half of these families. This means that, in many instances, mature adult sons may be responsible, or becoming increasingly responsible, for the financial performance of the business but do not have ownership or control its major asset. This may limit the scope for these sons to seek debt finance, for example.
The families in cluster two may also face issues relating to the housing and support of the parents. The parents in these families may well expect that the farm will continue to support them when they are less active in the farm business. This means that there must be sufficient income to sustain both generations. This requires that either the farm business continues to generate sufficient income to support all family members or that sufficient income producing assets have been accumulated off-farm.
Since the parents in these families often share in, if not retain, ownership of the farm, these families may encounter difficulties if the parents wish, or need, to claim a pension in the future. In addition, some of these families may have purchased or inherited some land in the last ten years. These families should be aware that, depending on the way in which land is transferred from the senior to the junior generation, they may have to pay capital gains tax.
The families in clusters three and four generally have unmarried adult children. The issues facing the families in clusters three and four are probably developing over time. In the near future, if not now, many of these families are likely to be grappling with problems similar to those faced by families in cluster two where the parents, who are approaching retirement, are running the family farm together with a married son. Others will be grappling with the problem of revising and adjusting their expectations and plans as their children move into the workforce, marry and establish their own families.
Farmers approach succession within a distinct rural ideology where farming is seen as man’s vocation, with great value placed on self-reliance, independence and hard work. Central to this ideology is the concept of patriarchy whereby women are inherently viewed as dependents, being either the wife or daughter of a farmer (Poiner 1990, 33-52). Marriage has been the usual point of entry into farming for women. Although daughters are often required to participate in the work routine on farms, they are not often encouraged to think beyond the possibility of marrying a farmer, and to consider farming as a career (Nalson and Craig 1987). Patriarchy also entails the exclusion of daughters from inheritance of land (Voyce 1994). Patriarchy means the position of father and farmer is a position of power and authority. Consequently, this means that the level of managerial responsibility assigned adult, married sons working on the farm may be disproportionately low, that the wages paid to these sons is minimal and that the handing over of the farm to the son may be not occur until the father is in semi-retirement (Voyce 1994).
The majority of respondents entered farming with some form of assistance from their parents (or the parents of their spouse). This usually involved parents bringing the respondent into the existing farm business or parents leaving land to respondents, or helping them to purchase land. We found that daughters are not, as a rule, involved in farm businesses. The proportion of families where daughters are working on the farm, are partners in the farm business or share in the ownership of land is less than ten per cent. We also found that sons are more likely to inherit land from their parents, and be helped by their parents to enter farming, than are daughters. This has the potential to cause ill feeling. As one respondent wrote:
Of course, interest and commitment to farming varies among women. Some embrace the opportunity to farm with great enthusiasm and play an active role in the family enterprise. Others reject the notion of farming as a career. These women may continue with a career outside farming or confine their activities as far as possible to those equivalent to an urban woman in unpaid domestic work (Nalson and Craig 1987). Whether women are free to exercise their choice between these alternatives is debatable.
However, there are a growing number of farm women actively involved in the business management and the physical running of their properties. With an increasing number of farmer's wives coming from backgrounds with vastly different expectations and perspectives on gender roles, the eventual effect must be to modify the traditional patterns of socialisation within farm families.
We found that most farmers believe that family farming entails passing the farm on to children and that parents have a responsibility to help their children into farming (should they so desire). We investigated the beliefs and behaviour of families with married children in detail as the process of succession is most advanced in these families. The majority of parents in those families whose married children are working with them on the farm believe their children have a future in farming and have encouraged their children into farming. Virtually all of these families plan to pass the farm on to their children. Approximately 30 per cent of these families have already established some of their children independently in farming. They assisted these children by initially bringing them into their farm business and then by helping them to purchase land.
Farmers with married children who do not work with them on the farm are less likely to feel that family farming means passing the farm on, are less likely to believe they have a responsibility to help their children into farming, and are more pessimistic about their children's prospects in farming. Only a minority have encouraged their children to enter farming and less than 50 per cent currently plan to pass the farm on to their children. The principal reasons for not passing on the farm are because these families are concerned that their farm is not large enough to support more than one family, because their children are not interested in farming or they feel they must sell the farm to be fair to all children. Approximately 30 per cent of these families also have children who are farming independently. These families mainly assisted their children by helping them to buy land.
We discovered that approximately 43 per cent of the families in the sample who only have daughters regarded the question of encouraging children to take over the farm as not applicable to them. In contrast, only 15 per cent of families who only have sons treated this question as not applying to them.
The majority of farmers believe that planning for succession should start when, if not before, their children display a commitment to farming. A relatively high proportion of farmers with married children believe that farmers should not start planning until either their children's marriages prove stable or they themselves are close to retiring.
We identified three broad groups of events in the life of a farm family that prompt farmers to start planning for transfer or precipitate a change in plans. One group consists of the birth of a child and when children finish school and either start farming or seek a career off-farm. The second group consists of taking on a major debt and experiencing a severe drought. The third is the taking over of the family property from parents and the injury, illness or death of a family member.
The extent to which farmers consult with their family members and others in planning for succession was also investigated. We found that discussions in farm families about the transfer of management responsibility and ownership of the farm centre around the parents and their married sons if they are working on the farm. Where the elderly parents of a farmer are still active in the farm business they too may be involved in discussions about succession and ownership. Children in a family who are married and living off the farm are less frequently involved in discussions if there is a married son working on the farm. The spouses of children are generally not included in family deliberations about succession and ownership transfer. Farm families appear to involve their daughters less frequently than their sons in discussions about succession and farm ownership. Farm families appear to rely on accountants and solicitors for professional advice on planning for succession. However, a high proportion of families (almost 50 per cent) do not seek professional advice.
Among families with married sons who work on the farm, 30 per cent of parents have not discussed succession with their sons and nearly 50 per cent have not discussed the transfer of ownership. Yet the respondents in these families are nearing retirement and plan to pass the farm on to their children. Generally, approximately 40 per cent of families with adult children who have finished school have not discussed succession and ownership issues with these children.
We analysed the factors that farmers consider to have an important influence on their plans for transferring the farm. Farmers indicated that how well they get on with their spouse, how well fathers and sons work together and how well their children get on with their partners as quite important factors in their thinking about the transfer of the farm. Farmers also indicated that, on average, it is quite important to consider the need to provide for children who have careers off the farm and that the need to treat all children fairly is extremely important.
Most farmers rated the impact of assets and income tests on their eligibility for pensions as being at least of some importance and the impact of government taxes as being quite important if not extremely important. Farmers also regard the unpredictability of prices and seasonal conditions as a quite important factor in thinking about the transfer of the farm and the need to preserve the viability of the farm as extremely important.
Finally, we explored the relationships between the level of stress farmers have experienced in succession planning, the issues they consider to be important in their planning, and the degree of difficulty they have experienced in discussing the transfer of the farm with family members. Over 55 per cent of farmers indicated that they have experienced little or no stress with respect to farm transfer. Some 22 per cent of farmers have found farm transfer to be extremely or very stressful. We found that the major factor contributing to stress in the transfer process is the difficulty families experience in discussing transfer. While issues such as assets and income tests, and maintaining farm viability are seen by farmers to be very important issues, it appears that these issues only become critical when family members are unable to communicate easily with each other about transfer and succession.
Huthwaite and Grace (1994) found that male farmers typically respond to stress by immersing themselves in physical labour and distancing themselves emotionally. This contributes to stress in their wives, because for women, self-esteem is closely associated with a sense of closeness and well-being in the relationship. Women respond by trying for closer communication, repeating suggestions and requests. Unfortunately, men often perceive this as nagging and distance further. This kind of pattern becomes circular, self-perpetuating and dysfunctional for both parties. Huthwaite and Grace suggest that both men and women could benefit from educational experiences which help them to understand their communication style differences and provide strategies for change where appropriate.
Implications
Two major findings emerge from our analyses. The first is that we found that succession and inheritance have not been discussed by parents and children in nearly a third of families with married sons working on the farm. We feel this is cause for concern, particularly as this proportion is likely to be an underestimate due to response bias. Typically, the parents in these families are in their sixties and their sons are in their late thirties. In all likelihood the two generations in these families have been working together for ten to fifteen years. That these families have not discussed succession does not mean that it is inevitable that they will experience difficulties managing succession. However, the lack of communication about the future between family members certainly raises the probability that problems will arise because plans are more likely to be made on the basis of misunderstandings and mistaken expectations. Furthermore, the longer discussions are postponed, the fewer the options and opportunities open to the family to take remedial action.
The potential to change this situation may be limited. Much depends on whether the absence of discussion is a reflection of the habits of communication within the family (which may be hard to change) or whether it reflects a lack of information about the range of options and strategies available. Our results indicated that farmers tend to commence planning for succession, and to revise their plans, in response to particular events. These events included when children finished school, when taking on a major debt or when experiencing a severe drought. They could act as points of entry into the succession process within farming families. It might be possible to take advantage of these trigger events to encourage families to develop a planning process that stimulates communication between family members where this is absent. For example, financial institutions in conjunction with government departments might offer information, advisory and referral services on succession and estate planning to farmers as part of the package of financial services on offer to farmers when they are seeking finance. Alternatively, adult education courses and extension programs that recognise and include succession and inheritance planning as important components in farm and business management planning may be attractive to some farmers.
This finding is consistent with recommendations made by Gamble et al., (1995) and by the Special Rural Task Force which investigated the impact of the social security assets test on farming families. The Task Force recommended that inter-generational transfer planning be promoted as part of an integrated approach to farm planning and suggested that this could be done through the Rural Adjustment Scheme and the Property Management Planning program for example (Special Rural Task Force 1997). This is an area which we believe warrants further investigation.
Our second major finding is that over 20 per cent of families have found farm transfer to be extremely or very stressful. We found that the major factor contributing to stress is the difficulty families experience in discussing succession. As mentioned earlier, taxation and related issues only become critical when family members are unable to communicate easily with each other about transfer and succession. This suggests that changes in government policy relating to taxation, gifting provisions and assets and income tests will have only a limited impact on the stresses families experience when succession planning. In our opinion, such policy changes are unlikely to promote more effective succession planning. We believe that the stresses that a substantial proportion of families experience will only be alleviated by facilitating communication between family members.
This raises the problem of creating opportunities for facilitation to occur. Again, there is the possibility of taking advantage of times when succession and inheritance are uppermost in the minds of families by offering them ways of developing skills in communication when events that trigger planning occur. For example, financial institutions might include information kits on communication skills as part of the package of financial services on offer to farmers when they are seeking finance. Clearly, services intended to promote communication within farming families must be offered in a manner which is attractive to farmers. Adult education courses and extension programs that recognise and include communication skills as important business management skills are one option. Some have advocated the establishment of family mediation services, or the expansion of the role of rural counsellors to include family facilitation. While these are worthy ideas, there are some obstacles to consider. First, in our opinion, families experiencing difficulties dealing with succession or inheritance may not, as a family, recognise that communication is the root cause of their problems. Second, recognition is not a guarantee that assistance will be sought, or welcomed. Third, if family mediation or facilitation services are to be widely accessible, a substantial investment in resources will be required. These considerations lead us to question the feasibility and effectiveness of such services.
Conclusions
Our findings indicate that as many as one in five farm families find succession a particularly stressful experience, primarily because of difficulties in communication between family members. Our findings also indicate that among families where the parents are close to retiring and handing on the farm to a married son working on the property, as many as one in three families are yet to discuss succession and as many as one in two have not discussed inheritance. From these findings we drew two conclusions. First, that the fundamental obstacle many families face in dealing more effectively with succession and inheritance is their communication and inter-personal skills. Hence, adjustments to taxation policy, gifting provisions, and means tests are likely to have only a marginal influence on the ease with which families manage the transfer of the farm between generations. Second, given the difficulty of raising these skills, a substantial proportion of farm families will continue to find succession a difficult process to manage.
References
Aldenderfer, M.S. and Blashfield, R.K. (1984). Cluster Analysis, Sage University Paper series Quantitative Applications in the Social Sciences, series no. 07-044. Beverly Hills and London: Sage Publications.
Alston, M. (1994). ‘Socio-cultural factors affecting land ownership’, in The family farm in Australia, J. Lees, (ed.) Armidale: University of New England, pp.1-40.
Arthur, G. (1994). ‘Farm succession, business wills and capital gains tax’, The Australian Farm Manager, Vol. 4(6), pp. 5-8.
Blunden, S., Gamble, D. and Sims, K. (1989). ‘The transfer of the family farm: a community response’, Faculty of Agriculture and Rural Development, University of Western Sydney-Hawkesbury, Richmond, NSW, Australia.
Bohler, K.F. and Hilderbrand, B. (1990). ‘Farm families between tradition and modernity’, Sociologia Ruralis, vol. 30(1), pp.21-33.
Coughenour, C.M. and Kowalski, G.S. (1977). ‘Status and role of fathers and sons on partnership farms’, Rural Sociology, vol. 42(2), pp.180-205.
Craig, R. A. and Killen, A.E. (1984). ‘Farm families: A focus for Australian rural social work?’, Australian Social Work, vol. 37(1), pp.19-25.
Gamble, D., Blunden, S., Kuhn-White, L., Voyce, M. and Loftus, J. (1995). Transfer of the family farm business in a changing rural society, RIRDC Research Paper no.95/8, Rural Industries Research and Development Corporation: Barton ACT.
Huthwaite, P. and Grace, M. (1994). ‘Communicate or perish: Gender issues in family farming’, in Proceedings of the conference on Issues Affecting Rural Communities, eds D. McSwan and M. McShane, Rural Education Research and Development Centre, James Cook University of North Queensland, Townsville, pp. 352-355.
Nalson, J.S. and Craig, R.A. (1987). ‘Rural Australia’, in Selected Readings in Australian Society. ed. S. Encel, Longman and Cheshire: Melbourne, pp.311-343.
Poiner, G. (1990). The good old rule: Gender and other power relationships in a rural community, Sydney University Press: Sydney.
Special Rural Task Force, (1997). Impact of the Social Security Assets Tests on Rural Consumers, Report of the Special Rural Task Force, Department of Social Security, Canberra, 48pp.
Symes, D.G. (1990). ‘Bridging the generations: Succession and inheritance in a changing world’, Sociologia Ruralis, vol. 30(3), pp.200-211.
Voyce, M. (1994). ‘Testamentary freedom, patriarchy and inheritance of the family farm in Australia’, Sociologia Ruralis, vol.34(1), pp.71-83.
Elaine Crosby, Senior Project Officer,
The Rural Development Centre, University of New
England Armidale NSW 2351
Phone:
(02) 67735141.
Fax: (02) 67733245.
Email:ecrosby@metz.une.edu.au
Internet:
http://www.une.edu.au/~trdc/RDC.HTM