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Start The Succession Planning Conversation

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Recent studies by government and financial companies indicate over 70% of Canadian farmers and small business owners will undergo succession planning and either sell or transition their business in the next 20 years. This process is often unwillingly triggered by an unplanned event such as a divorce, disability or a premature death. These same studies also indicated that only a third of Canadian farms or small businesses have a formal succession plan in place.

Many who are now approaching retirement have worked many years to establish and grow their businesses. But few have talked about this with their family or even started a succession plan. Depending on the size and complexity of the business, it can take two to five years to develop and implement a proper succession plan.

One interesting finding was that 40% or more of owners said they plan to transfer the business to their children, yet only half have talked to them about their plans. This is a serious concern, especially if they were to die prematurely without having made their plans known, or should their children not be interested in doing so. This is where a trusted financial advisor can help, firstly by beginning the conversation, then guiding families through the difficult technical and emotional issues.

Financial advisors bring value to the table in different ways. Working with an internal team of succession planning experts can help in client meetings. An external team of professionals such as chartered accountants, lawyers with will and estate expertise and insurance professionals can help navigate the advisor and their clients through the succession planning discussion.

Conversations between owners and their successors should be initiated early, as the process can take years. Conversations are not always the easiest to start. Elaine Froese is a farm family mediator who has a number of resources to get communication started sooner rather than later. For example, the intended successor may need to be groomed to take over the business, or go through a mentor-ship period. Or the next generation might not have all the necessary skills or knowledge to run the business. The retiring owner may have to consider hiring a management person, to work along-side and mentor their successor.

In cases where the retiring person has several children but only one intended successor, issues to discuss may include estate conservation or equalization to ensure no one feels slighted later on. All the estate assets should be considered, and help may be needed to determine how to allocate different asset classes to different children, so as not to force any to be co-owners in asset they don’t have an interest in. This is where the fair or equal conversation comes into play, as often non-farming children may have some expectation of either getting a share in the farm, or some level of equivalent monetary value instead. Examples of asset classes to consider include the on-going farm or business, investment portfolios, insurance policies and real estate such as cottages or US vacation property.
This is also where the importance of reviewing wills comes in, to ensure they are up to date and reflect the parents’ current wishes. Wills drafted when the kids were little can be a ticking financial time bomb 30 years later.

If sale or succession is in the works for your family farm or small business in the next five year or less, be proactive and get started with the process now. Find a trusted financial advisor with experience in helping families through this process. This person should be someone who will work with your existing legal and accounting professionals, or who can bring their own team of professionals to help with your sale or succession planning needs.

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