A Winter Project for Farm & Business Families
Before the days lengthen out and the weather warms up, now may be the time to begin a winter project and start the conversation with your family about sale or succession of your farm or small business. With my first 27 years here in Canada spent working with farm families including eight years as a partner in a farm equipment dealership and the last 20 as a financial advisor, I like to think that I have a good understanding of the issues that both farm and small business families face. The biggest frustration that I have had is to explain to a family who is forced to sell their farm or business due to sickness, disability, divorce or a premature death that there is very little we can do to help because we don’t have sufficient time to implement strategies that would have helped smooth the way forward!
Human nature being the way it is, it takes time for the ownership generation to acknowledge the need to start into the planning process, then it takes more time to develop and implement a plan. It’s too late to plan when sickness, disability or premature death happens. We tend to procrastinate on issues that require talking to family members about money. Add to this a general reluctance to give up control of something we’ve spent a lifetime building. Another big factor is fear of change, something my farmer father-in-law summed up well when he said, “There’s only one difference between a rut and a grave; a grave has ends!” It’s easy to get into a rut in life and not even be aware of it.
We come across plenty of examples of the issues that arise when succession planning is postponed. With so much of a family’s net worth tied up in farm land or business assets today, just the potential tax liability should be enough to shock people into action. Considering that farmland in our area is selling for $4,000 or more an acre, there’s often very significant embedded capital gains and a big tax liability on sale or rollover that can be reduced or eliminated with proper planning.
The tax-free rollover provisions for farm and small business owners comes with some very specific rules in order to qualify. Another concern is CRA’s musings about increasing the capital gains inclusion rate to 75%.
This process seems like the old question “How do you eat an elephant?” – with the answer being “One bite at a time!” One might add, potentially over a long period of time! It all starts with a thorough review of a host of financial information, and some honest and frank discussions as to what each family member’s hopes and dreams are. Then develop a process to start implementing your plan. It’s usually too late once the farm or business sale has happened and the machinery and other assets are sold.
It all starts with a visit with a trusted financial advisor for a complete review of your individual situation, and to help you kick start the process. Your financial advisor also can quarterback the process with a team of other professionals such as accountants, lawyers and tax specialists to develop the right plan for your family. Given sufficient lead time, solutions can be tailored to any family’s specific needs.
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