Succession planning for Casterton clients

Posted on 22/12/2015 by Chris McDonald in Succession Planning

If you are looking for a succession planning service in Casterton, Sinclair Wilson’s accountants will find the best solution for your business using all the tools at our disposal; including Self-Managed Superannuation Funds (SMSFs).

Succession planning is a very individual thing as no two situations are the same. It is not uncommon for our clients, both in Casterton and other areas, to refuse to talk about the succession of their business, farm, etc… But while this barrier can delay the discussion, it is one which inevitably breaks down the closer the client gets to retirement.

The difficulty with succession planning is that it impacts at least two generations and its complexity only increases with the number of siblings involved. Generally the aim of succession planning is to provide for the smooth transition of the family business to the next generation, while providing a comfortable retirement income for the parents and also providing equity and fairness to those siblings not involved in the business.

As can be seen, succession planning is a very involved process and the earlier a family starts the process, the better the end result will be. A key to the success of any succession plan is open and frank discussion between all family members so that everyone is aware of one another’s expectations.

Achieving an outcome that is acceptable to all parties concerned must also be balanced with retaining the family business as a viable going concern for the next generation. The succession plan has failed if we end up with fairness and equity for the parents and siblings, but leave an unviable business to those siblings taking it over.

A strategy successfully used by Sinclair Wilson over many years is to incorporate a superannuation fund as part of the plan. With the popularity of self-managed superannuation funds (SMSFs), this has generally been the fund of choice as it offers far more flexibility.

If the family was active early in their succession plan and the business was quite profitable, then hopefully the parents have built up their superannuation portfolio. When the transition to the next generation occurs, the outgoing parents can cease drawing on the business and draw a pension from their SMSF to fund their retirement. This strategy would have allowed the business concessional tax rates on the superannuation contributions made in prior years.

Sometimes the SMSF balances have not been built up sufficiently to support the parents in the transition. In such cases; Sinclair Wilson has looked at other strategies that can supplement the superannuation pension. It may be possible to transfer some of the business assets, e.g. farming land, into the SMSF and have the siblings who are taking over the business pay a rental fee to the SMSF. This can add to the parents’ superannuation pension entitlements, while retaining assets for use by the business and without excessively increasing the business’s overheads.

Succession Planning is a very involved process and the earlier you start the more successful it will be. It requires a lot of thought and planning and the integration of a SMSF is quite often beneficial to the process. Sinclair Wilson has many years experience in Casterton and other rural areas across South-West Victoria and South-East South Australia and we can use our experience to assist you in the Succession Planning process.