There tends to be a large focus on the parents of a family farm when it comes to succession and estate planning.
This includes what their exit strategy is and how they plan to fund retirement.
But for a successful transition, it is important that the next generation also understands the current decisions and the long-term plan. This article provides some of the tough questions a next generation farmer should be asking. These questions can also be a good starting point for a family meeting about your farm’s future.
As the next generation, you should ask your parents to identify their succession and estate plans.You may make a different decision in how you participate on the farm or how you want to operate if your parents plan to pass 75 percent or even 50 percent of their land to a non-farming child. This question ensures everyone is on the same page for future plans and can help avoid future conflict.
You should also educate yourself on the different estate mechanisms that can be used. Would your parents consider giving you a right of first refusal on the land that goes to your non-farming siblings? Would they consider having the land locked into a long-term lease agreement with you for operations after their estate is settled?
In a lot of cases, we see the relationship between siblings diminish at the time an estate is settled. The best way to avoid this is by having upfront family meetings on the plan for the future of the farm. Also, by having the proper mechanisms in place you ensure a potential breakdown in family relationships will not hinder your family farm legacy.
A final consideration is how you are being rewarded for your current contributions to the farm.
A starting point is working on the farm and taking a wage. However, if you plan on staying on the farm long-term you should know what the next steps are for growth in your farming career.
One option is to start your own farming operation. This may include renting land or equipment from the family farm, working as a joint venture with the family farm, or, if you are lucky enough, potentially buying more land from a neighbour to expand the family operation. This way you have “skin in the game” and are rewarded based on the success of your operation.
Another option for your family to consider is passing on partial ownership in the family farm corporation. You would then be rewarded for any future growth of the family farm based on your percentage of ownership. The percentage of ownership and control of the farm corporation may be increased over time to ease the transition of the family farm.
No matter what your situation, it is very important to plan early in order to ensure that the family farm remains profitable and can continue into the future. Ensure you talk to a professional to discuss your plan and the options available.
Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: email@example.com.