Farm succession plans must be formalized

Power dynamics and possible abuse and addiction issues can complicate the decision of what to do with the family farm

The average Canadian farmer is 55 years old, says Statistics Canada, and the average is steadily increasing.

Yet only 8.4 percent of family farms have a succession plan, according to Statistics Canada, which means more than 90 percent of farms are operating without a plan to transfer ownership in case of a family crisis or retirement.

This doesn’t sit well with Tyler Case, an assistant professor at the Edwards School of Business at the University of Saskatchewan. Case had to go through a rapid succession of his family farm following the death of his father.

There is much more to it than just the process of deciding who takes over and how the process is done, he says. Case does not want other families to go through what he did.

“We have farms that are multimillion-dollar ventures. In other industries, you’d have a board of directors and a succession plan. Farmers don’t always have that. We need formality as it relates to governance at times. It’s not just the how to farm and who takes over. It’s a lot of those issues that don’t get resolved with a succession plan.”

Factors like cash flow, debt and commodity prices make agriculture difficult enough to plan for, but other issues such as power dynamics, family issues, possible abuse and addiction can cause added complexities to the decision of what will happen to the family farm, says Case.

“They’re sitting on huge assets value and maybe not a whole ton of cash and savings and so one of the big barriers to retirement is not a huge problem to have but you’ve got to figure out what you’re going to do with this land.”

Donovan Tofin, an accountant and retirement specialist with The Retiring Farmer consultancy group, says separating assets into business and personal categories is a great first step in a succession plan. That clarifies what is personal assets and what the next generation is set to inherit, he says.

“If they don’t separate the ownership of the assets from the management of it, I don’t give the succession much success.”

Debt is more than likely going to be part of the succession plan, as well. Communicating with the next generation what they are getting in terms of assets and debt is an important conversation to have.

“The related debt goes along with it,” says Tofin.

“Occasionally, you will find the incoming generation is more than happy to assume ownership, but they don’t want the debt.”

Land is a valuable commodity right now, so does the next generation want to farm the land or will they be selling it later on because they want the money from the sale?

If selling the land wasn’t the intent behind transferring it, there is going to be some conflict, says Tofin.

Everyone has to be on the same page for the succession to be a success. This includes outside players, as well, says Tofin. Financial planners, lawyers, and accountants should be well versed in farm culture to address farm-based practicalities, he says.

And other problems must be addressed besides money.

Succession planning is straightforward in the financial and legal sense, says Case, but that is a farmer’s easiest problem. The tough problems are going to be family problems, mental health problems, problems that aren’t usually addressed or solved with a succession plan. In older generations, these were things families didn’t talk about, says Case.

“We know agriculture is a physically dangerous industry in terms of deaths and injuries, but I don’t think we always understand the mental health implications and there’s an increasing prevalence of that in the succeeding generation.”

As always, communication is key when overcoming these issues for the succession to succeed. Bring other voices to the table, says Case,such as someone who can moderate conflict resolutions or a person who can help address mental health concerns.

“Families can’t always do it on their own. They need support and help and that has to come from a multi-disciplinary approach.”

When a farmer is working with a financial adviser or accountant on their succession plan, what they want out of succession is an important first question.

Farmers can’t ask this question soon enough, says Case, but they often ask it too late. With an eight-year-old and a six-year-old, Case is already struggling with how much to tell his kids about farm issues and what he wants the future to look like. It is a balancing act, he says.

“You want to teach kids about the business but you don’t want them worrying and stressing as a six-year-old. The more we can communicate the better and the more time we have on our side is the better.”

There are a lot of resources available for the legal and tax-based succession planning help on the internet, both on government websites and through broad searches on Google, says Tofin.

A lot of it is hidden because farmers do not ask for the resources, so it will take some digging to uncover these supports.

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