Managing Your Money

Passing the family farm to the next generation – you need a succession and estate plan

Running a family farm isn’t just a job, it’s a 24/7/365 way of life.  You’ve worked long and hard to build your business and the value of your assets.  But lately, you’ve been giving a lot of thought to what happens when you wish to retire.  You want the farm to stay in the family, but who should take over?  How will your choices affect the quality of your retirement, your spouse, your non-farming children, and the amount of taxes your estate will pay?

That’s where succession and estate planning come in.  Through this process you can make the right decisions about who will inherit your farm and other parts of your estate, in what proportion, and how and when you should pass down control of your farm. Here are a few steps to get things going in the right direction:

Start the process early.   Sit down with your spouse to identify retirement, family and farm goals.  Decide together the retirement lifestyle you want and the role your children will play in the farm transfer.  Be sure to talk to your children about your hopes for the future and listen carefully to their desires and concerns.

Build a plan that meets everyone’s needs.   Your plan should address a variety of ‘family’ issues.  For example, you’ll need to determine the most appropriate sources of retirement income for you and your spouse. Would it be better to live on buy-out payments from the children, supplemented by investment income or income from your continued involvement in the farm?

You’ll also want to maintain family harmony, now and after your death by assuring children who are committed to the farm that they will ultimately acquire it, and assuring children not involved in the farm that they will be treated fairly and equitably.

Build a plan that reduces the burden of debt and taxes.  You want to give the next generation farm-owner(s) the best chance of success without having to sustain an unreasonable amount of debt.  Options such as life insurance can be used to provide a tax-free, creditor-protected lump sum that your beneficiaries can use to pay taxes or other expenses that come due on your death.

To preserve the value of the farm, your plan should also ensure it (and your estate) qualifies for all the special tax reductions available under the Income Tax Act.  For example, there is the special $500,000 capital gains exemption available to qualifying family farms, and the potential for a tax-free rollover of farm assets to children through various forms of equity transfer through the sale, rental or leasing of equipment, buildings or land; or by partnering to share income from crops or livestock.  You could also establish a living (inter vivos) trust that lets you transfer property to family members prior to your death. This crystallizes the $500,000 capital gains exemption, and allows you to retain the ability to make decisions.

There are many transfer strategies available to you.  The ones you choose will depend on your personal, family and financial circumstances.  But regardless, there are certain estate ‘nuts ‘n bolts’ items you should put in place right now – like having a legally enforceable Will so you can be sure your legacy lives on as you wish, naming a Personal Representative (Executor or Liquidator in Quebec) that you trust and who knows your wishes, and executing an Enduring Power of Attorney (known as a Mandate in Case of Incapacity in Quebec) for someone to manage your business and financial affairs should you become incapacitated.  Of course, keeping meticulous financial records is also vital so that, no matter what happens to you, everyone involved will know the farm’s financial position.

Your lawyer and financial planner can help make sure your family farm succession plan succeeds.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.

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