Farm loans – what is different?

Plenty is different. Farming is different and farm loans need to be different. Otherwise they just become debt traps for the unsuspecting farmers.

Weather

Weather has a huge unpredictable impact on the ability of farmers to make loan repayments. That means the terms of the loan contract need to be tailored to fit with the weather pattern.

Bad seasons

Bad seasons are a key reason for loan defaults so the loan contract needs to provide flexibility in repayments to cope with floods and droughts. They are what farming in Australia is all about.

Fire

Bushfires rage in Australian summers destroying crops, pastures and often killing stock, so there needs to be a provision in each farm loan contract to cover what happens in the case of fire, flood and drought.

Pests

Mouse or locust plagues sweep Australia when seasons are just right for breeding and apart from costing a fortune to control, when out of control they can be very destructive of profits. Allowance needs to be made in the loan contract for pests.

Disease

Sometimes disease strikes, like bird flu, and devastates properties . This too needs to be taken into account when loans for as long as 15 or 20 years are taken on.

Stock on hand

This is a very valuable asset in any family business, but in city businesses stock on hand is inert and can be stored in a building. In farming the stock is alive and kicking and its nature can change in a matter of months depending on the factors listed above.

Loan management skills

Farmers are skilled at managing livestock, crops, pastures, soil, fencing, byers and sellers. They are not necessarily skilled in farm loan management because they are not doing it on a daily basis. At GBAC we are, on a national scale.

Borrowers Broker

We don’t call GBAC the Borrowers Broker, because we are not brokers and we never take any commission or other payment from lenders. We work only for the farmers and they pay us. It is rare for us not to be able to save them a lot more than what they pay us if fees, in the interest rate and charges they pay the lender.

Whoever pays the piper calls the tune

Don’t ever think that the broker who will be paid a fee of around $10,000 to deliver yo0u to a lender, is working in your interests above those of the bank that pays them. That is just impossible, no matter what the law says. Common sense is a lot more helpful than laws made by politicians who receive very large “donations” from the moneylenders.

Get it right from the start

When you want to get your loan working in your interests as well as those of the moneylending bank, give us a call at GBAC 0428 417 496, 0422907155 or 02 9988 3312 and let us get your loan set up correctly from the start. Farmers are caught like pigs in a trap by bankers who make loans on terms that are impossible for farmers to meet. Then when the farmers fail to do what is required the lender jacks up the interest rates to make it harder, bleeds the farm for as many years as it can until the debt approaches the market value of the farm, then sells the farmers up. Don’t get caught in this nasty debt trap and lose the farm!

Is the advice or assistance good or bad?

As consultants we have to constantly ensure that the advice we give is good for our farm and small business clients. That means helping them do what they want, but also warning them of dangers and pitfalls. Because we have farmed and run our own businesses, at the same time as consulting clients all over Australia, we do know many of the dangers and pitfalls.

Government paid advisers

How good is the government at governing? Does it know how to run your farm or business? What does it want to achieve by paying people to advise you. Is it trying to help you or help itself?

What are the government’s objectives
Governments want increased turnover from you to give them increased taxes to spend. They seek increased turnover from you to pump up the economy and make the money go around faster. The more debt you carry the more you will be able to boost the economy with the money you borrowed. People in debt often work harder and faster to cope with the burden of that debt.

Are you thriving or suffering?

There is nothing like a farm or small family business to pump sales proceeds straight through in expenses paid out to suppliers and government bodies.

The point of farming or running a small business is not just to enjoy the fabulous independent lifestyle. It is to earn money to share with our family, to enhance their future, expand their horizons and provide them with enjoyment outside of the farm or business.

Has the advice or assistance you received, increased the amount of money left over for you and your family at the end of each financial year. Or has all that adviser-driven expansion and borrowing in fact left the bank balance in the red? Could owner-operators have been led into mortgage debt that drains the farm or business of most of its profit or even places the farm itself at risk of foreclosure?

Benefit of doing it before advising others?

The government has never run a farm or small business. When governments lose money they just borrow more or increase taxes or both. Have your advisers run their own farms or businesses?

We learned a lot by running our own merino sheep property in the NSW Central West and our own beef cattle property and stud in the Southern Tablelands. We’ve also run our own sub-division, equipment hire and art rental businesses, as well as working for global corporations and small businesses.

There is merit in carefully assessing the advantages and disadvantages of using government resources including government-funded advisers. Farming requires special skills as does running a small family business. They are very different to the public service.

Check the outcome
No matter what we do or who we listen to, it pays to reflect on the result. Some of the advice I have received from government advisers has been superb but some of it has been quite costly. I have formed a view over my life that I get what I pay for. The person I pay works for me and with me, considers me first when giving advice. I pick them on the basis of experience, knowledge and past performance. Life is too short to find out later that the advice worked against me.

The financial statements are a good indicator in any business venture, as are the people you serve. High profit is what to aim for. If your stock or crops are up to scratch, if your goods and services are as good as your marketing says, your customers will know and spread the word.

Aussie Farmers Beware of the bank financial supermarkets

Farmers borrowing from only one bank-paid broker is like selling produce to just one Supermarket. The banks have become financial supermarkets fleecing farmers with the skill of a gun-shearer. They close branches, cut phone staff to keep you hanging on for ever then want you to travel miles to prove who you are.

Farmers come out worst. The 4 Big Banks alone earned a profit last year of $36 billion. That is to say they charged their customers $36 billion more than the services cost. The Banking Royal Commission revealed that many of them act illegally, dishonestly and deceptively. That is why as a farmer/HELP consultant I established the Borrow Better concept and service. It is how you lay the foundations for a loan that determines how well it works for you

The key to farm borrowing in Australia is to:

Prepare a good loan application explaining to the bank why it should lend to you
Use the Borrow Better presentation to each of the banks most likely to lend to farmers
On receipt of offers negotiate the cheapest loan with best terms and most friendly bankers
Ensure that all loan terms are clearly understood to avoid unpleasant surprises
Ensure that loan repayments are readily affordable in all seasons and circumstances.
Establish systems to ensure that repayments can be made in advance in good seasons to cover relief in bad ones.
Aim to clear the debt as early as possible
Ensure title deeds are safely recovered and mortgages discharged on repayment.

That is why it is better to borrow the “Borrow Better” way. And it is run by people not robots. Put some competitive pressure on the banks to win your farm loan business. We all work better under pressure. That is when banks give you the best deal.

Unseen brokerage costs farmers dearly
For every $1 million borrowed through a bank broker, the bank pays the broker around $7,000 which the bank recovers in interest and charges from the farmer. The farmer will possibly get the loan, but how the contract terms suit the particular farmer’s budget or circumstances is another thing. Neither the bank nor the broker will be that much worried about the farmer paying the loan back as long as the security is enough for the bank to sell the farm up anytime it wishes. The contract probably lets the bank do that anytime. But as long as the farmer works sunup to sundown to pay the bank interest of $60,000 to $100,000 a year per $1m borrowed, the bank will be no hurry for the loan to be repaid. But just when things get tough on the land is when the bank will often cut and run, calling the loan in at the worst possible time for the farmer. That is often when farmers call me at GBAC.

Borrow Better
That is why I set up the Borrow Better human app in 1987 when banks were first de-regulated. Some farmers will remember we called it Moneygrams then. One of the first users paid the $100 fee and made a cool $300,000 in interest savings because of it, without moving banks! It is better to get the right help earlier rather than later. We help farmers obtain the most suitable, cheapest loan, with the most suitable contract terms from the most agreeable banker, right at the start. GBAC is a HELP consultant.

When taking the bait watch out for the hook
What is not obvious to most people when borrowing is that the money is the bait and the contract the hook. Like fish, many farmers offered the loan happily grab it while it is going, without noticing or even reading the contract on which they are hooked, with their family farm on the line.

The Borrowers’ Broker
Sometimes I think of us as the Borrowers’ Broker because we take the borrower to all the banks and tease out the best one for each particular borrower on the basis of the farm production, seasons, prices and government policies and the family needs of the farmers. We also help the farmer to clear that debt as fast as possible because very often the bank earns more out of the farm than the farmer does. (Compare your “Interest paid” with your “net profit” or “taxable income” to see how it is for you).

Inherited debt – the farmers curse
Leaving the debt to be passed on to the younger generation is not a good idea. Plenty of farmers remember when the interest rates went up to 24%. At present, rates are low because recession is hanging over the world and has been since well before Covid struck. The good thing about recession for farmers is that they can usually feed the family, but it can make a big difference if the farm income drops and the debt goes into default, so that the bank forecloses. My second cousin, from whom I purchased the beef cattle property settled by my great-grandfather, told me that when he was young and depression struck, the only reason the bank did not sell the farm up from under his family was that its value had crashed and would not nearly cover the debt. Today the bank just sells the farm and writes off the rest of the debt. Banks make so much money that a write-off is just like a drop in the ocean. We often turn that to the advantage of the farmers tricked into unaffordable loans by ruthless bankers. My cousin took over running the farm, cutting costs to near zero. The day, decades later that he cleared the debt and recovered his title deeds he took his staff to the pub to celebrate. It concerns me greatly that some rural consultants and counsellors may be encouraging farmers to have their children borrow from a bank to buy them out. One farmer described that to me as “Child Abuse”.

Drought
As he handed the farm over to me on a substantial cash deposit and long payment terms, he warned me, “Remember, when you come out of each drought, you are heading into the next one.” It was sound advice. As revenue came in I saved money and hay for those long hot sunny days when there was not a blade of grass on the ground. Then I adopted a policy of gradual de-stocking as drought hit and breeding up numbers again in good seasons. That worked surprisingly well. A neighbour commented on how fast our place re-stocked after drought without ever buying cattle in.

Whip Hand
Farm profit is a mental process. Decisions on spending are the key determinants of being able to continue the farming life. We help farmers make those decisions, because we know that farming is the best life in Australia, but it is hard won. We also help farmers guide governments into doing what is needed for farmers. Farmers, as voters, mostly hold the whip hand, but too often don’t use it.

HELP Consultancy
A HELP consultancy is there to help its clients, not to focus on making money out of them. Today we see too many consultants and government services based around the service providers getting rich whilst the farmers battle seasons, governments and prices. My grandparents and great-grandparents would be happy that I have been able to establish a HELP consultancy that has helped farmers from the tip of FNQ to King Island and up to the Kimberleys then into the centre. There are many better farmers than me, but to run sheep at Tullamore and cattle at Braidwood along with a national HELP consultancy that grew out of my Chartered Accountancy practice is thoroughly enjoyable.

Fair Go for All Aussie

Fair Go for Aussies

It surprises me that 40 years after we invented our Votergrams and Moneygrams, some Australians are still having trouble dealing with their banks and governments.

The words I learned in my youth ring true, “If we always do what we’ve always done, we’ll always get what we’ve always got.”

There are very specific new strategies required to obtain good results from both banks and governments. The world has changed and the old ways no longer work as they did.

The naïve belief that both the banks and the government are working to serve the people should surely be dispelled in a few words.

Borrowing & the Bank

Banks are making multi-billion dollar profits that enable them to pay multi-million dollar salaries to executives. If you were able to earn that much money would you want to stop in order to give customers a fair go? Not likely, when the customers just keep on coming regardless!!

Will brokers, paid huge commission of about .008% ($8,000 on $1m) on each loan they deliver to the bank, really look after your interests ahead of that of the bank that pays them? Not Likely!!

Bankers and borrowers sit on opposite sides of the table. One wants the best deal for the bank. The other wants the best deal for the borrower. As in arm wrestling, the one with the strength wins.

Australians who really want to borrow better, google “Borrow Better”. That brings them to BorrowBetter.au to borrow better as many have done since de-regulation in 1987. Then we can help them with proven borrowing and negotiation strategies so that they get an extra special deal as the bank saves a mountain of brokerage.

Sure it takes a bit more effort, but doesn’t everything that’s worthwhile? It is better than learning the hard way that “variable” means the interest rate can vary up as easily as down, at the will of the moneylender. ferris wheel

Government and Society

With 27million people, 17 million voters, how could any government please everyone. It can’t!! The government does what active voters persuade, bully or bribe it to do. The first step for Aussies is to take off their “Community” hats and replace them with their “Voters” hats. The parliament that they elect as voters is their pathway to good government. Those Votergrams have proved to be the very best vehicle for using that pathway to guide government departments, contractors and bodies.

Votergrams embrace not only the ability to reach each and every MP, but also a wide range of very successful strategies that have been progressively developed over those almost 40 years, many with the active assistance of Members of Parliament and parliamentary staff.

Votergrams are all about working with parliamentarians through polite, persistent political persuasion in the privacy of parliament.

FairGO

All Australians are entitled to a fair go and we have found that we can generally make that happen for them.

Greg Bloomfield

Profit-sharing with the bank!

Check it out

How much are you profit-sharing with your bank or other moneylenders?

A quick look at the Profit and Loss Statement in your tax return this year will tell you. If you don’t want to wait that long, look at your 2023 tax return

Go to the Profit and Loss Statement and highlight the Net Profit at or near the bottom

Then go up the column to the line for Interest or Interest paid and highlight it.

Compare the two figures.

If Net Profit is four or more times the amount shown as “Interest” then you are probably going okay. If Net Profit is 10 times Interest, or more you are certainly not working for the bank.

If Net Profit is about the same amount as Interest paid then you are sharing your profit equally with the bank or other moneylender. That means that if you are working a 12 hour day on your farm or in your business, you are working 6 of those hours for the bank.

If interest is 3 times your Net Profit there is a more serious problem. That means you are working 9 hours a day for the bank.

If interest is 10 times your Net Profit, you are working about 10 hours a day for the bank. Time to change that.

It’s good to know

It is good to know who is making the most out of your working day, because sometimes we work long and hard to make a mountain of money for others but very little for ourselves.

The solution is usually to plan your finances to increase the profit you earn and decrease the interest paid to the bank. A budget that increases profit and decreases debt is the best solution.

Plan your profit in advance

I had always known that, but when I first bought then expanded my merino sheep property at Tullamore and then added my beef cattle property at Braidwood, the truth came home to me in my own financial statements as well as those of my clients all over Australia. It is one thing to consult others but a quite different thing to do it yourself.

Doing my own budgets and changing the farm financial structure so that we were making most of the profit took a bit of time but was very rewarding. When we farm, our focus tends to be mainly on crops, livestock, vehicles, fences and feed. Finances do not enter the daily routine except when the bills come in and we look for funds to pay them.

As a friend once comment to a group discussion, “If you fail to plan, you plan to fail.” Financial Farming is what delivers the financial rewards for those long hard days of work

Greg Bloomfield, GBAC

Farmers Friend or Foe

Who is the Aussie farmer’ friend?

The good farm debt consultants, of course!

Don’t be misled into cash-draining debt by some foe working for the bank or government. Good debt is debt to buy an appreciating asset like more land. Bad debt is debt to cover operating costs or farm succession. There’s more than one way to finance farm operations and succession.

On the Australian Bankers Association website is a bank-friendly warning from ASIC, “AFCA and consumer groups continue to raise concerns with ASIC about the conduct of debt-management firms” –

Who is on the farmer’s side? Not the Bankers’ Association! Nor ASIC! Both are trying to frighten farmers from getting good advice about farm loans. Farmers can wonder whether ABA and ASIC know anything about livestock or crops and imagine that “fencing” is a sport played with swords.

Banks made to refund billions. A farmer who did this would be in gaol!

In March 2023 banks were ordered to or offered to refund $4.7 billion dollars they had wrongly taken from customers. One farm debt consultant says that could be the tip of the iceberg. “ASIC protects dishonest banks instead of gaoling their directors who have ruined farmers’ lives. How can banks steal $4.7 billion from customers and yet the directors who direct bank operations have not even been prosecuted for theft or fraud, let alone gaoled?”

Negotiating with bankers and marking calves have a bit in common

As a 4^th generation farmer, Greg Bloomfield was fortunate enough to qualify as a Chartered Accountant, CPA, Chartered Company Secretary and Fellow of the Institute of Directors (AIDC) by his early 20’s.But like his grandfather and great-grandfather what he really enjoys is running sheep and cattle. When banks were de-regulated in 1987 and given free- rein to rob customers, he decided to focus his Australia-wide professional practice on helping farmers fight back. He did that while running sheep at Tullamore and cattle at Braidwood. The difference between bankers and livestock are that the stock are pretty honest, but both lose a bit in the process. He still does that and not one farmer anywhere has had anything but praise for his determination in getting them a fair debt write-off. The “about” page on his website displays the glowing praise of his past clients.

Greg Bloomfield and GBAC are on the farmer’s side. For years he headed the largest branch in NSW Farmers and toured the state visiting farms to get huge debt write-offs and addressing local groups. While he says “I’d rather be working cattle or fixing fences than battling banks”, the internet has meant that the time he spent traveling from farm can now be spent in earning farmers more money from debt negotiations with their bank, than many have earned in years of farming.

Borrowers beware and ensure you know what the repayments will be.

It was Greg’s wise neighbour, Frank, at Tullamore who cut to the essence of farm loans by saying “Borrowing’s the easy bit! It’s the paying it back that’s hard.” That is a truth that can be forgotten as we scramble to find someone to lend us the money we need.
The services that farm debt consultants like Greg provide are unsuitable and uncomfortable for dishonest and predatory banks and include:
making banks write off debt caused by predatory dishonest lending practices,
making banks share the suffering for setting debt-traps from which farmers cannot escape,
persuading the banks to give farmers a repayment holiday when the season or prices go bad
helping farmers increase their profits with cheaper more suitable loans in the first place
working tirelessly to help farmers clear debts, recover title deeds, farm debt free and enjoy the farm lifestyle.

The one who pays the piper, always calls the tune.

Banks have the opposite priority to farm borrowers. What makes the banks rich, makes the farmers poor – interest and charges. When the farmer cannot pay interest the bank increases the interest rate. When the farmer can’t make a loan repayment the bank gives an overdraft at a higher rate to cover the payment. The loan grows and grows like a cut-and-come-again weed crop. This can continue until the farmer is sold up when it reaches 80% or 90% of the farm’s market value.

Government too has the opposite priority to farm borrowers. It seeks an ever-expanding economy where money moves around and around to end up in the government coffers through taxes each time it moves. Farmers borrow then spend the money with the rural store, which pays the wholesalers who pay the manufacturers who pay their staff who pay the supermarket etc, etc. Farmers become the pipe through which the stock and crop sale money flows out to the great unknown.

If the government or banks are paying the people advising you, recognise that there is a line they do not cross. Because the person doing the paying determine what advice is given.

Don’t fight bank alone because they do it every day

What Greg and GBAC do is get alongside the farmers to make as much of the farm revenue remain in the farm finances tank as possible so that the farmers can turn on the tap and spend it on themselves and the family whenever they want.

That is what decent farm debt consultants do. They work exclusively for the farmer and family more than anyone funded by the banks or government are ever likely to do. If they are any good they produce a huge return on the investment in their fees. Because they are serious, persistent and have a few secret weapons up their sleeves. Greg works for the farmers, not for the government or for the bank!

As farm debt consultants for many decades, with their own farming, accounting and business experience, the GBAC consultants don’t apologies for making billionaire banks write off dishonestly obtained debt to help farm families struggling with flood, fire and drought, price fluctuations and government policies. You can ring Greg on 0428 417 496 to see whether he might be able to help you borrow better or shed some of the debt.

Who is on the borrowers’ side? Bank debt consultants, for sure!

On the Australian Bankers Association website is a bank-friendly warning from ASIC, the so-called corporate regulator, about what they call “Debt management firms” who help borrowers manage their debts. Most Aussie borrowers don’t have debt management skills and banks take advantage of that. The warning says:

“AFCA and consumer groups continue to raise concerns with ASIC about the conduct of debt-management firms and the potential harms these entities may cause consumers, including that they may provide unsuitable services and engage in predatory conduct” – ASIC.

It all depends on who runs those firms.

What do Aussie borrowers need?

The “unsuitable” services, from the ABA viewpoint, that bank debt consultants might provide are to:
make the banks write off debt caused by predatory dishonest lending practices,
make banks share the suffering from deliberately trapping Aussie borrowers in unaffordable debt-traps,
make the banks give borrowers a repayment holiday when the industry or the economy go through tough times
help the borrowers increase their profits with cheaper loans, to clear their debts earlier.

The big bank protection racket

Banks have the opposite priority to borrowers. What makes the bank rich, makes the borrower poor.

Government too has the opposite priority to business borrowers. It seeks an expanding economy where money moves around and around to primarily create employment then end up in the government coffers through taxes. Business owners borrow then spend the money running the business with the suppliers, staff, marketers etc who spend the money again and so on and so forth.

Aussie borrowers however lose profits through interest they pay, but still need to earn enough profit, or surplus cash, to repay their loans. Otherwise they have “forever” debt and end up working for the bank and the government for life.

Bank debt consultants show borrowers how to retain as much of the money that comes in, as they can, to clear debt early and really enjoy running the business they are skilled at, instead of working day and night under increasing pressure from a rich bank.

Whoever pays the piper, calls the tune.

AFCA, ASIC, ACCC and the Bankers Association work against bank debt consultants obtaining fairer loans for borrowers, investigating inappropriate bank practices and generally helping Aussie borrowers who have been lied to, misled, cheated, defrauded or robbed by the bank. As bank debt consultants for many decades, with their own accounting and family business experience, the GBAC consultants don’t apologies for making billionaire banks write off dishonestly obtained debt to help Aussie families struggling with a cost-of-living crisis, housing crisis and not knowing whether the economy is going up or down.

While banks make billions-Aussie loan seekers look around

Banks are counting up their money

Banks are counting their half year profits in billions. They have so much spare cash that they don’t know what to do with it. Loan seekers are looking around to see how they can share in those billions. They are they working with their banking consultants to see how they can keep their businesses and farms secure and profitable by obtaining better loans. Sadly they often rely on people who are not really working for them at all – like bank paid brokers and counsellors. While loan seekers look for funds to expand, banks buy back their own shares to use up some of their surplus profits.

Loan Seekers want the Honey

Farm loan seekers face a trifecta of major challenges with seasons, commodity prices and government policies driving many to distraction. But they want the honey – the sweetest loan they can get. Getting the honey always takes a bit of effort but it is worth every bit. The easy way to get the very best honey flavoured farm and business loans, is to spray a bit of smoke around and put the bankers into competition with each other. There is an Aussie farmer/accountant who ran his own businesses, sheep and cattle and thinks that banks should be a lot fairer to their loan customers. His farm loan seeker website puts the banks & other lenders into the financial sale yards of www.farmloanseekers.au to see what offers they can come up with when competing against each other for the farmer’s business. Bankers sure can sharpen their pencils when they want the business!

Experience Counts

Business loan seekers too need the very best loans, not just on rates and charges, but terms and conditions as well. GBAC founder Greg Bloomfield ran businesses in real estate development and equipment hire. He joined his first public company board when he was 21. He was a Fellow of the Institute of Directors by 24, just before qualifying as a Chartered Accountant, CPA and company Secretary. He bought is first sheep property in the 1980’s and moved to cattle in 1990. Greg knows that the best family business security comes from having lenders compete for the loan business through www.businessloanseekers.au and having a consultant to whom your financial security is the absolute top priority.

It is staggering the number of businesses and farms that get wound up or closed down without ever seeking assistance with their loans and cash crises. GBAC has been doing that for half a century. It works partly because clients only deal with the bosses.

Cost-of-living crisis

Cost of living a burning issue

Cost-of-living crisis is top of mind of many Aussies in recent times. Top of the list are late loan repayments.

Loan Default

Default is what a borrower does when they fail to meet loan contract terms due to late loan repayments. It is usually caused by a cost-of-living or cashflow crisis. Late loan repayments causing a borrower to default on the loan agreement often result in the whole debt becoming due immediately. That can then lead to the home, farm or security property being sold up by the bank to clear the debt.

Cost of living causes problems for borrowers.

Many borrowers faced with lack of cash seem to hope the problem will just “go away”. It doesn’t! It is best to stay ahead of the game and initiate a call to the bank. If you are a business owner or farmer contact GBAC if you would like us to negotiate with your bank and or other trade creditors to give you breathing space. Mostly they will all help you once they know you have professional assistance and are doing your best to meet the loan terms. From a pure business perspective, they do not want to lose your business. They just want to know you are doing your best to fix the problem with professional guidance.

In one case we were called in to save the family home of a couple with three children. The bank was about to have the home auctioned. We had to move fast to deal with bankers, lawyers and sale trustees to prevent the sale and get the loan back on track.

Move fast for the agreement to last

In almost 40 years we have helped those who for one reason or another cannot make loan repayments on time. We have found very few cases where we cannot persuade the bank to give borrowers a break. Re-negotiation can restore loan repayments and continue the loan to its full term. The same applies to trade creditors.

Trusting trusts and inherited debts

In the 1960s and 70s, Trusts were used a lot for what was then called, “Estate Planning”. Changes in tax, land tax and family law have removed many of the benefits for owners of small and medium sized businesses . Trusts in estate planning can often see the next generation facing unfathomable complexity. It can be even worse if a consultant has suggested that a bank loan should be acquired by the younger generation to buy out their parents. Then inherited debt is added to trust complexity ensuring the need for expensive advisers to handling accounting and tax obligations each year.

Business owners should carefully weigh up the pros and cons before letting advisers set up trust for them.

Trusts set up for taxes and duties

The great advantage of the trust is that nobody actually owns the real estate or money, though someone is trustee or controls the company that is trustee. Death does not trigger death duty, because the business or home is not owned by anyone. But as there is no death duty that is largely irrelevant, though if it was introduced it might then be to late to wish there was a trust. Capital Gains Tax (CGT) may apply not apply either if the assets have been held for long enough and the transfer is related to retirement. Obtaining specific advice for each family situation is vital. General advice cannot apply to any individual situation without specific modification as applicable.

Many family businesses are handed on to the next generation. The same may apply to homes given the housing crisis inflicted by federal immigration policies, so a trust holding the title would suit. But, if there is no death duty and CGT does not apply, the advantage is not so obvious even from a tax viewpoint. But involving a bank in a succession plan can lead to the burden of inherited debt on the next generation

Estate planning that retains control

What a trust can do is allow the older generation to control what the younger generation does in the business. That is not always wise. Young people need freedom to innovate and make mistakes of their own. That is how we all learn.

A trust used to be a way for a family, handing on the business or home to the oldest son, to ensure that in the event of a marriage split-up, his wife or partner would not end up with a share of the home or business. Family law seems to have scuttled that idea and many would say that is a good thing.

Skip DIY when succession planning

Families business owners should obtain professional accounting and legal advice to determine what happens to the business and its assets. They should learn whether or not it is possible and if so, how the succession plan should be structured. Each family situation is unique so this is not a field for DIY on the basis of a note like this or any other. “When in doubt, find out!”

Danger of using trusts for succession planning

The danger in trusts, is profits distributed to family members to minimise tax rates, are often not paid out to the beneficiaries in cash. Rather, those profits may credited to them but reinvested. However, the money distribution belongs to those beneficiaries. Parents need to be aware of the risks of them using that money without written permission of the beneficiaries.

Complexity can be a major disadvantage of a trust deed. It can cost more in legal and accounting fees to eventually unscramble the trust structure. The results may yield no tangible or financial benefits in doing so.

Sense of achievement

Rather than give the business to the next generation it may be better for all parties to consider selling the business to the children or one child. That way the child gains the satisfaction of obtaining the business through their own efforts rather than as a gift. The parents benefit by having cash to spend after years of pouring it into the business. There are very good ways of doing all of this without involving bank debt. Not handing over debt to the children is fairer .

Why try GBAC?

Big professional firms, those associated with business organisations, banks or government are not necessarily appropriate for succession planning due to conflicts of interest. They are often very expensive. Succession planning should protect businesses from banks and government.

Greg has managed transfers, succession of a major business from his grandfather and a farm that was settled by his great-grandfather, to his generation. Greg and Pat have both been involved in running business and consulting.

In a world of excessive greed, GBAC lets clients say goodbye to that greed and hello to good old-fashioned service. That is where the client comes first and foremost and always deals with the principals.