Older farmers should not assume that their children are interested in taking over the enterprise, even when they are engaged in its operation.
The topic of who will carry on the farm is complicated and full of family dynamics, and for that reason family members often do not make their true wishes clear.
The sooner that the family can have open and honest conversations about each member’s hopes for the future, the more likely it will be that a succession plan can be developed to successfully meet people’s desires and maintain family harmony.
Succession wave coming
Agriculture Canada has for years been telling us that this decade, with a large proportion of farmers arriving at their senior years, would be marked by the largest transfer of farm assets in Canadian history.
At one time it was assumed that these assets, estimated in the many tens of billions of dollars, would be transferred from one generation to the next.
Having had several years to anticipate such a change, tax and financial planners have had the opportunity to develop many strategies to pass on family farms, including using the capital gains deduction (currently capped at $1 million for 2017) for both spouses, transferring assets to a trust or family corporation or creating a partnership to absorb the assets.
How the assets are structured, the number of children involved and the goals and objectives of all participants will determine the most efficient route to take.
The mechanics of the transfer can be complicated, but with the right expertise they are all relatively manageable.
An emerging and perhaps bigger challenge to the transfer has been the intergenerational differences and interests of the various family members.
Family farm children must want to continue with the business, but discussions should take place with them long before a decision is made on how best to transfer the assets.
Make no assumptions
Many farmers today were in their 50s when they took over the farm from their fathers. They have now spent their lives training and showing their children the farm operation and are looking forward to seeing them embrace their legacy.
Using a traditional model, they prepared their wills and have shared the farm assets equally with all their children, who are then expected to keep the operation going.
Many farm children have worked the farm along with their fathers and mothers for years, but it is rapidly becoming evident, in many cases, that only one child or perhaps none of them are interested in the family business.
Because it is such a difficult subject, many children are not forthcoming with their parents about their intent to abandon farming. Secretly, however, they are interested in the liquidation of assets or a pre-determined monthly cash flow from rental revenue.
Unfortunately, because this conversation often happens too far down the road, it is not unusual to see a family break up with siblings never speaking to each other again over the succession planning of the farm assets.
If this resonates with your personal situation, we suggest you initiate those open and honest conversations with your family as soon as possible.
The discussions will most likely be ongoing and evolve as intentions and individual capabilities become clear.
It is probably wise to enter these talks with an open mind to various options.
These are probably some of the most difficult and important decisions for farm families and should involve a lawyer experienced in such matters, along with a farm tax specialist and financial planner to ensure you are aware of all your options, including liquidation and distribution of the assets if that is in the best interest of keeping the family whole.
Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: email@example.com or 800-265-1002.