Farm Weekly | The SMSF Succession Trap Many Farming Families Miss

Corey Bavin | Director

For many WA farming families, the family farm isn't just another asset. It's the business, the retirement plan and, in many cases, the family's legacy.

That's one reason why many farmers choose to hold farmland in a Self-Managed Super Fund (SMSF). The tax benefits can be attractive, particularly when the land is leased back to the family farming business. But there's one question that is often overlooked and gets left in the ‘too-hard basket’: 

What happens to the farm when you die? 

It's not the most cheerful topic around the kitchen table, but it could be one of the most important conversations a family has. 

It’s easy to assume your Will covers everything. In many cases, it doesn’t. Assets owned by an SMSF are generally not controlled by your Will. Instead, the trustee of the SMSF decides how death benefits are paid unless appropriate documentation is already in place. 

That's where a Binding Death Benefit Nomination (BDBN) comes in. Think of it as a set of instructions telling the SMSF trustee who should receive your super benefits when you pass away. Without one, surviving trustees may have more discretion than you intended, which can sometimes lead to disputes between family members. 

And when the SMSF owns farmland, there's another challenge that often flies under the radar: liquidity.  

Imagine Mum and Dad's SMSF owns a $3 million farm and not much else. On paper, the fund looks asset-rich, but when the first member passes away, there may not be enough cash available to pay a death benefit. Unlike shares, you can't quickly sell off a small portion of a farm to raise money, which can put pressure on both the family and the succession plan. 

This can create difficult situations for families. One child may want to continue farming the property, while another may prefer to receive their inheritance in cash. Without proper planning, trustees can face pressure to sell land to create liquidity. 

That's why succession planning isn't just about deciding who gets what. It's also about ensuring the fund can actually pay benefits when the time comes. 

The reality is that most farmers spend years planning for droughts, markets and seasonal risks. Yet many spend very little time planning for what happens to their SMSF when they are no longer around. 

Like servicing machinery before harvest, succession planning is best done early rather than in a crisis. If you're unsure how your SMSF and farm succession plans fit together, a conversation with a specialist adviser will be time well spent. The team at Byfields works with farming families across regional WA on these issues every day. We’re here to help. If you’re ready to start a conversation or would like to learn more, contact our team.