When planning for the succession of your farm operation to the next generation, several important issues can arise. Some of the key issues include how the goals and objectives of key stakeholders align with your goals, how you will be spending your time in retirement, ensuring you have adequate financial resources in retirement and how to divide assets among your children, some of whom may not wish to be involved in the farm operation. There are many issues, and they will vary depending on your particular circumstances.

What are the goals?

An important starting point in any family farm transfer is clarifying your succession goals and those of your spouse, children and any other key stakeholders. It is important that everyone agree on the succession goals and that the goals be compatible. For example, are the children who will take over control of the farm looking for transfer of control in the near future? If so, does that fit with your timetable for relinquishing control? Do the children who wish to farm want to farm as a group or do one or more want to farm independently? The plan will likely require compromise among the parties if it is to be successful. It is important that the goals of all involved be compatible. If this is not possible, a different course of action may be warranted, such as a sale to a third party. 

What will you do in retirement?

This part of the succession plan is often the greatest source of anxiety for the farm owner. In all likelihood, you have spent most of your adult years working the farm with very little time off for leisure. The farm gives you purpose and defines who you are. Upon retiring, what will you do with the time you used to spend working on the farm? Do you want to spend more time travelling, doing volunteer work, working at a part-time job or going back to school? The options are virtually endless. Retirement is an opportunity to focus on what is important to you. What aligns with your core values? What makes you happy and fulfilled? Well before you retire, sit down with your spouse and identify what you want to do in retirement; that advanced planning will help to reduce any anxiety that might arise. 

Financial planning

Once you have developed your goals for retirement, you should ensure that you have the financial resources to achieve your retirement goals and live comfortably. You need a financial plan. Speaking with your financial advisor is the best way to begin. To prepare a financial plan, you will need to estimate what your annual living expenses will be in retirement. Understanding what you want to do in retirement will make this job easier. A financial plan will include an estimate of the income you can expect and will highlight any estimated income shortfall in your retirement years. An expected shortfall might affect the price you set for the farm and can otherwise influence – or even postpone – your retirement plans. No matter the outcome, you will have a clearer picture of your financial situation, getting you closer to realizing your succession goals. It is also important to update the financial plan on a regular basis to measure whether you remain on track and to recognize changes that will affect your lifestyle. No plan is static; unanticipated circumstances can arise (such as health issues or new opportunities) that were not previously considered.

Dividing and distributing the value

When transferring a farm to the next generation, it is normally not feasible to transfer at fair market value. If the transfer is at a price that is less than fair market value, how do you make things fair for non-farming children? Fair does not necessarily mean equal. In fact, equal may be unrealistic. An equal distribution of your assets could leave the farm economically unviable for the next generation. You should ensure that the price you seek for the farm does not saddle the next generation with a debt load that the farm will have difficulty handling. Setting clear goals that everyone understands will help you work through this. Family members should understand what is most important and, accordingly, understand that equal treatment may not be realistic or in the best interests of all involved. 

There are four key elements for developing an effective succession plan: start the planning process well before you plan to retire; create an environment that embraces open, honest communication among all key stakeholders; surround yourself with a strong advisory team (accountant, lawyer, investment and wealth management advisor, accredited facilitator/mediator, provincial government farm specialist, etc.); and ensure that your advisory team is working together.

Every farm succession plan is different, and other important issues can arise, including income tax planning, financing the transfer and determining your role in the farm, if any, after the transfer. Look for discussion of these issues in future Farm Alerts, and contact your Collins Barrow advisor for more information and guidance on your farm succession plan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.