Your farm is many things. It’s the place you’ve called home for all these years. It’s the job you’ve poured your whole self into. Most of all, it’s a way of life - your way of life.

Given all of that, it makes sense that it might be challenging to decide what will happen to the farm once you’re gone. Your land and other assets have a lot of emotion and memory wrapped up in them, and things can get complicated if your ideas about the future don’t align with your family’s expectations. That’s why it’s important to create an airtight succession plan that everyone knows about and understands. Putting in a little bit of work now can save a lot of heartache later.

Financial planning for farmers goes beyond investments or retirement income. It brings the land, equipment, tax strategy, family expectations, and long-term succession plan into one coordinated picture.

A recipe for success

There are a few ingredients that go into creating asmooth transition plan for your farm

The first one is understanding the difference between fair and equal. For example, imagine that you have two children. One of them stayed on the farm to help run it; meanwhile, the other child left to establish their own successful career, and has a pension and their own home. In that case, splitting the farm between the two children would be equal, but not fair.

The next essential element is the tax considerations. How will you transfer land and other assets in a tax-efficient way? Are you taking advantage of any possible tax exemptions? Are you inadvertently setting things up in such a way where a big tax liability will be deferred to the next generation? There are a lot of moving pieces to take into account.

But the most important ingredient is to have clear communication that goes both ways. It’s important for you to be transparent with your children about what you want to happen, but you also need to consider their desires. Farming is a vocation, and your farm should go to someone who truly wants it, not someone who will think it’s a burden.

Why it’s crucial to create a feasible plan

I have one family that I work with that has made sure all the necessary communication has happened ahead of time, and all of the pieces are in place. One of their children will take over the farm, and he’s happy about it. The other children will be appropriately recognized, and they’re happy about that. This was a situation that could have had the potential for discontent later on, but that’s very unlikely now because everyone is on the same page.

Unfortunately, that’s not always the case.

I’m also working with an older couple who are no longer able to work on the farm, but the husband is reluctant to sell any of the farmland because of its sentimental value. They have three adult children in their 50s and 60s, who all have their own lives and jobs and don’t want to take over the farm. They also have one grandchild, and while he would like to eventually inherit the farm, he wouldn’t be able to afford the equipment and other investments necessary to start up a farming operation.

This is a couple that’s rich in assets, but not in cash. If they chose to liquidate part of the farm now, they could pass on substantial resources to their children and grandson. Unfortunately, because they’re hesitant about both parting with their land and having an open dialogue with their children, this situation has the potential to create a lot of unhappiness.

The risk of deciding prematurely

There’s danger in avoiding making decisions until it’s too late, but there’s also danger in making them too soon. A third family that I work with is dealing with this right now. 

This is a family with seven kids and a very lucrative farm. Before dad passed away, he gave the entire farm to one son, with the understanding that the son would not only look after the farm, but also his mother. That son is able to live a great lifestyle because 90% of his parents’ wealth was put into his hands, while his siblings, who are all struggling financially, will have to split the remaining 10% between themselves when their mom passes away.

It’s a sad situation all around. The siblings no longer talk to the brother who inherited the farm, which is very upsetting for mom. Meanwhile, even though she has all of her needs met, she’s not being taken care of the way she could and should be – the way the son promised his father he would. All because a decision was made earlier than it needed to be.

The value of professional opinions

I can’t stress enough how important it is to have the right plan in place, and to do that, you need to get the right advice from an agricultural financial advisor who understands how farm succession,tax planning, and family dynamics connect. That’s why when families consult me, I make sure that the information they get goes beyond my expertise. I bring in accountants and lawyers who specialize in things like taxation and succession planning. I connect clients to all of the resources that they need, and also help them dissect the advice they get so that they can make the best decisions possible.

A lot of people seem to have the idea that farm succession is very simple – you just pass it all onto your kids, right? They’ve talked to their neighbour down the road, and his plan seems good, so they’ll just do the same thing. Or else they’ve gotten advice from a friend of a friend, and he seems to know what he’s talking about. But every situation is unique, every family dynamic is unique, so every succession plan has to be unique too. You wouldn’t go to your hairdresser to get your teeth fixed, so why would you take financial advice from someone who’s not qualified to give it?

So often in life, we’re tempted to make big decisions based on just a small amount of information. But when you’re deciding the future of everything you’ve worked for – your farm, your family, your legacy – you need to have all of the facts. You need someone who knows how to ask the right questions. You need someone who can coordinate challenging conversations. You need expertise.

That’s where we come in.
 

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Chris Thiessen is solely responsible for its content. Seek advice on your specific circumstances from an IG Advisor.