As Australia’s farming population ages, poorly planned succession can destroy wealth, fracture families and leave no one better off.

The average age of Australian farmers is currently somewhere between mid-50s and early 60s, substantially higher than that of workers in most other sectors. This relatively advanced age has significant implications for family-owned farms, particularly with respect to succession planning and the division of assets among children.

Often, for sentimental reasons, there is a desire to ‘keep the farm in the family’. However, it needs to be recognised that this aspiration can have major financial, social, family-cohesion, and mental health consequences. Perhaps the clearest way to demonstrate what can go wrong is to present a short case study – one that is, unfortunately, often close to reality.

Bob and Elizabeth Smith own a 4000-acre (~1620 hectare) farm in southern New South Wales. Their two daughters work in Sydney, while their two sons work on the farm. The property has generally been reasonably managed but does not generate sufficient income to support three families. As a result, both sons work off-farm from time to time to supplement their incomes.

Understanding the farm’s financial position is critical to appreciating the importance of succession planning. The farm initially carried a debt of $500,000, but because interest payments were not fully serviced for a decade, the debt grew to over $2.1 million. The property itself was valued at $8 million, with an additional $2 million in livestock and machinery, leaving net assets of approximately $7.7 million. As it often the case, Bob and Elizabeth are asset-rich but income-poor and thus in a weak financial position.

Low profitability has also made it difficult to maintain farm infrastructure, and many pastures are overgrazed. To supplement their limited on-farm incomes, the sons cut large amounts of firewood from remnant woodlands on the property.

When Bob dies, his two Sydney-based daughters are excluded from the will, and the farm in its entirety is left to the two sons. However, the farm does not generate sufficient income for the sons to survive financially on their own, nor does it allow them to pay their sisters a reasonable share of the property’s value. Compounding the problem, the will also fails to make adequate provision for Bob’s widow, Elizabeth.

Unsurprisingly, the daughters contest the will. This leads to protracted legal proceedings, high legal costs, and deepening animosity between siblings. The dispute cannot be resolved in a financially viable way, and the bank is eventually forced to foreclose the property. In the end, little money remains to divide among Bob and Elizabeth’s four children and Elizabeth herself, and neither son has the resources to purchase a viable share of the farm. The farm is no longer kept in the family.

We are aware of several real cases that closely resemble the dire circumstances described in this scenario. In these instances, the outcomes have been devastating financially and have had severe and lasting impacts on family relationships, mental health and well-being.

Given these realities, sometimes a tractable decision is to sell the farm and divide the assets equitably among family members. In other cases, a farm may be passed on to one child, with the others receiving an equivalent value in off-farm assets. Without such planning, it is clear that many farming families are poorly prepared for succession. As a result, substantial wealth invested in farms can be eroded through prolonged interest payments and, in disputes, through expensive professional fees such as legal and banking costs.

Therefore, it is unarguable that farmers must develop both a succession plan and a business plan, including a clear strategy for withdrawing from or restructuring the farm business as ownership inevitably changes. Given the high – and increasing – average age of farmers in Australia, the urgency of such planning has never been greater. Effective succession planning is essential to ensure smooth transitions, minimise family conflicts, avoid excessive legal and financial costs, and reduce the risk of sever financial distress for family members.

This article is drawn from material in the book _Sustainable Farm Finance_, published by CSIRO Publishing in 2022. The book outlines how improved financial literacy can substantially enhance the economic, ecological and social sustainability of farming enterprises. The content on succession planning presented here has been strongly informed by recent real-world events experienced by two of the authors.