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When it comes to farm succession, money matters. Emotions and family goals are hugely important (as we’ve discussed), but at the end of the day, a succession plan has to stack up financially for all parties. In this post, we dive into the dollars and cents: how can retiring farmers get what they need out of the business, while the next generation can afford to take over and keep the farm thriving? We’ll look at the financial challenges unique to farm succession in New Zealand and strategies to tackle them. 

The Financial Challenges of Farm Succession

Succession in farming is often more complex than in other businesses because of a few key factors: 

• High Asset Values but Low Liquidity: Much of a typical farm family’s wealth is tied up in land (and perhaps stock), not in cash. New Zealand farmland values have risen dramatically. For instance, dairy farm land prices more than doubled in 20 years – from a median of about $14,200 per hectare in 2000 to around $33,000 per hectare by 2020​ This means an average dairy farm could easily be worth tens of millions of dollars today. It’s great on paper, but if a son or daughter has to “buy” the farm at market value, it’s often impossible without incurring enormous debt. The incoming generation simply can’t whip out a cheque for $5–10 million. Even if they could borrow it, the farm would struggle to service that debt. 

• Rising Farm Debt: The boom in land values has been accompanied by increased borrowing. In the dairy sector, for example, rural debt quadrupled over two decades, reaching around $58 billion​. High debt levels can strain a farm’s cash flow and leave less wiggle room to finance a succession (for example, there may be significant mortgages that need to be cleared before ownership can transfer safely). 

• Income vs. Capital Divide: Farm incomes (the actual profit you live on) haven’t risen nearly as fast as farm capital values. So we have a situation where the retiring generation often needs the capital locked in the farm to fund their retirement (since NZ farmers don’t have an official “pension” beyond NZ Super, and many may not have large KiwiSaver or off-farm investments). Meanwhile, the successor needs the farm to generate enough income to support their family and possibly service loans if they had to borrow to pay out siblings or parents. Balancing these needs is tricky. 

• Multiple Heirs, One Asset: In many cases, you have one farm but several children. Fairness considerations mean you might want to give each child an equitable share of the inheritance. But if the farm constitutes, say, 80% or more of the total estate, how do you compensate the non-successor children without selling the farm? This is a classic farm succession dilemma. 

• No Inheritance Tax, but…: New Zealand thankfully doesn’t have estate or inheritance tax, which removes one potential cost that other countries’ farmers face. However, that doesn’t mean succession is tax-free. There can be income tax or GST implications when transferring assets or selling stock, and if you restructure entities (like moving from a partnership to a company or trust), there are tax and legal considerations. Also, if not planned well, one could trigger bright-line test taxes on land sales in certain scenarios (though farmland sales within family are often structured to avoid this). The key is that while we don’t have death duties, professional tax and accounting advice is essential to avoid any unintended tax bills during succession. 

Making the Numbers Work: Strategies and Solutions

Despite the challenges, there are ways to make farm succession financially feasible. Every family’s situation is unique, but here are several strategies commonly used in New Zealand to balance the books: 1. Gradual Transition of Ownership: Rather than an all-or-nothing sale at full market value, many farm owners opt for a phased approach. For example, forming a family company to own the farm and then selling/gifting shares to the successor over time is a popular method. The parents might initially own 100% of the company’s shares. Over, say, 10 or 20 years, the farming child buys a certain number of shares each year (sometimes at a discounted value reflecting their contribution to growth, etc.). This spreads the cost over time and often the purchases can be made out of farm profits. It also means the parents gradually convert some of their farm equity into cash for retirement, without the child having to get a massive loan on day one. An added benefit: by doing this within a company structure, you might avoid triggering a large tax event, as selling shares can be simpler than subdividing land titles.2. Use of Trusts and Leases: Some families keep the land in a family trust and lease the farm business to the child. The trust (with the parents and perhaps children as beneficiaries) provides the parents an income (the lease payments) for life, and the child gets to run the farming operations without the burden of buying the land immediately. Over time, the trust could gradually appoint (transfer) the land to the child or perhaps equalize with other children by giving them equivalent value from other trust assets. Leasing is actually quite common. Essentially, the child grows their own stock or savings during the lease term, which can later help in a partial buyout. Leasing ensures the retiring generation still owns the land (and can step back in if needed), yet lets the next gen run the show day-to-day and profit from it.3. Sweat Equity & Gradual Asset Transfer: In many cases, the farming child has already “earned” a stake by working on the farm for years at below-market wages. Acknowledging this sweat equity can be part of the financial plan. For example, if a son has worked 10 years on the farm for low pay, the parents might recognize that with, say, a 20% stake in the farm business given to him when formalizing the succession plan. Similarly, specific assets can be transferred incrementally – e.g., parents might gift some stock or machinery to the child each year (within any gift duty-free thresholds, though NZ has no gift duty now, still need to consider deprivation if rest home subsidies become relevant). These incremental gifts reduce the price the child eventually has to pay.4. Off-farm Assets and Life Insurance: If you have more than one child, one tool to “make the finances work” is to use off-farm assets or life insurance to provide for children who won’t inherit the farm. For instance, some farming parents take out a life insurance policy that will pay a lump sum to the non-farming children when the last parent passes away, thus giving those children a financial benefit while the farming child gets the farm. Alternatively, if you’ve managed to invest in some rental property or a bach, those could be left to the other kids, while the farm goes to the one who’s farming. This way, each child receives value, though not in identical form. The goal is to avoid forcing the farm to be sold just to create equal cash inheritances. (We’ll dive deeper into these fairness tactics later, but they are fundamentally about solving the financial equation of multiple heirs.)5. Ensure the Farm is Profitable and Efficient: It may sound obvious, but a succession plan will only work if the underlying farm business is profitable enough to support it. Before handing over, it might be wise to optimize the farm’s finances – that could mean reducing debt levels, investing in productivity improvements, or diversifying income streams. A more profitable farm can better afford to pay retiring parents a retirement stipend and sustain the new operators. If your farm has had a few rough years, consider delaying formal succession a bit and using the time to get the farm’s financial health in top shape – perhaps with help from advisors on budgeting or farm management tweaks.

Talking Numbers with Everyone Involved

A crucial part of “crunching the numbers” is transparency and planning with the family. It’s highly recommended to have a family meeting around the financial plan once the senior generation has a draft idea. Lay out the basic math: what the farm is worth, what Mum and Dad need for retirement (roughly), what the plan proposes for each person. While not every detail must be disclosed (some parents are uncomfortable sharing full net worth with kids initially), providing at least a broad picture is good. This helps manage expectations. For example, if the farm is worth $5m and there are four kids, it’s better to explain early that “we can’t magically give each of you $1.25m without selling the farm – so here’s what we’re thinking of doing…” rather than leaving them to assume and be shocked later.Remember, the goal is for the farm to remain financially healthy after succession. This means the plan should not saddle the new farming generation with unsustainable debt or expenses, otherwise it’s a pyrrhic victory – they might inherit the farm but then lose it to the bank. Likewise, the retiring generation deserves a comfortable retirement after pouring their life into the farm. Balancing these needs often requires some give and take, and sometimes outside help (loans, investors, or smaller-scale asset sales) to bridge gaps.

Get Professional Advice Early

Crunching the numbers for succession isn’t a one-time task – it can involve budgeting, financial modeling, tax planning, and more. It pays to get professional advice early in the process. Experienced rural accountants (like us at CMK) and farm succession specialists have seen many models and can suggest ideas you might not have thought of. They’ll help ensure you’ve covered things like:

• Will the retiring couple have enough to live on for possibly 20-30 years of retirement (accounting for inflation and healthcare)?
• What are the tax implications of transferring assets or restructuring? (For instance, selling stock to your child at below market value could trigger tax on deemed income, but there are ways to handle it.)
• What financing options exist for the successor? Maybe special low-interest family loans, or utilizing Farm Ownership Account schemes if any (historically there were government-assisted schemes).
• How to structure any ongoing financial relationship – e.g. if Mum and Dad will partially rely on continued farm income, perhaps formalize that with a loan agreement or preferred stock that pays dividends, etc., to avoid confusion or conflict later.

A little time with the spreadsheets and advisors can save a lot of heartache.

Conclusion

At its core, farm succession must answer: “Can we afford to do this?” With smart planning, the answer can be “Yes.” It often requires creativity, patience, and sometimes tough choices (like scaling back expectations or selling a portion of assets). But countless New Zealand farm families have navigated this successfully, finding ways to let the older generation step back with security and the younger generation step up without being financially crippled. The key is to start the financial planning early – well before the actual handover – so you can put the right structures and steps in place.If you’re feeling overwhelmed by the dollars and cents, you’re not alone. Our team at CMK Accountants specializes in farm succession planning and can guide you through the financial modelling and structuring. We’ll work to understand your unique situation and craft solutions (like companies, trusts, leases, etc.) that make the numbers work for your family. Get in touch for a free consultation – let’s crunch those numbers together and set your farm up for generational success.