Knowing how to refer to the generation that will be leaving the business can be a bit awkward.
The older generation? Senior generation? Seasoned generation?
Whatever the descriptor, it is critical early on in the planning process for the retiring generation to document initial thoughts on retirement and succession.
The retiring generation’s thoughts about the succession process varies significantly from family to family:
- how they see it unfolding
- their role during and after transition
- what their needs will be
- what the end state will look like.s
The interests of the retiring generation can, unintentionally, get lost in the tax and estate planning discussions.
It is important to document and review these interests throughout the process to ensure they are kept top-of-mind.
If something goes amiss during or after the succession, the succeeding generation has a whole career ahead of it to make adjustments. The retiring generation doesn’t have that luxury.
Therefore, it’s important that the retiring generation ask questions and begin to understand their interests in retirement early on in the succession planning process and before the transition of ownership and management is finalized.
Here are questions the retiring generation can use to stimulate discussion on retirement and succession:
Personal and lifestyle
- what do you envision yourselves doing in retirement?
- how much income will you need to live this way?
- what are your current costs of living?
- have you thought about inflation pressures and how this might affect your retirement needs?
- are you planning to buy big ticket items in the five years after retiring, such as a house, cottage or an extensive travel vacation?
- have you thought about yourself in retirement first, as opposed to thinking first about your children’s interests?
- who is taking over the family business?
- are they ready?
- will they need additional management training?
- if so, what type?
- have you spoken with the successors regarding the transfer of the farm and have the discussions been formal; that is, have notes been recorded?
- have you spoken to advisers regarding the transfer of the farm and have these discussions been formal, with notes recorded?
- do you have regular business and/or family meetings about business in general and specifically about succession?
- have you spoken to your non-farming children regarding the transfer of the farm?
- are you worried about the potential for conflict?
- do you have an up-to-date will?
- does it accurately reflect your thoughts on succession?
- have you appointed powers of attorney?
- are you considering using, or do you have in place, life insurance as a vehicle to assist with succession?
- are you considering passing some of your estate to grandchildren?
- are you concerned about being fair and equitable?
Ownership, labour and management
- who will own the farm assets after the transition of ownership?
- who will be working on the farm; specifically, what roles will you have?
- who will be the manager?
- what are the expectations for involvement from the rest of the family?
- are considerations required for non-family involvement, either in management and/or ownership?
Farm financial performance
- do you know if the farm can financially support everyone’s needs and wants?
- how will the transition be financed?
- do you know the tax implications of your succession?
- when will you retire?
- when do you want your succession plan to be completed and ready for implementation?
- when will the actual farm transition begin?
- will the transition be gradual or all at once?
You may have more questions than answers as you begin the process, but the process should help bring clarity and understanding to the questions.
There are no right or wrong an-swers, which adds to the complexity. However, I find that working through this exercise with farm families can be beneficial.