Over the past 17 years, I have worked with a wide variety of farm families to help them through the sale or transition process. I’ve found that every situation is unique and there is no cookie-cutter process and no simple formula to follow. Because of the emotions and stress involved, I find families often give up in frustration when taking on the planning process themselves. This is when a trusted, experienced advisor as a quarterback can be invaluable.
Understanding the “baby boomer” farming generation is critical because, although farmers are salt-of-the-earth people to deal with, they are not always gifted emotional communicators. Adding to this, mothers tend to want equality between siblings while dads think more along impartial lines which often creates multiple delays.
Here’s an idea of how the process often goes:
As a starting point, I ask to review other documents such as wills, personal directives, and powers of attorney to make sure they are current and relevant.
- Consider outdated documents such as wills that were drawn up when the kids were born as they now may be ticking time bombs. Now 30 years later, there’s a son/daughter who are farming with their mom and dad and expect to inherit the farm. But they’ve forgotten that their wills state that everything is to be split equally between their surviving children.
- Or worse yet, there could be no wills, leaving everything in the estate to be allocated out according to the respective provincial legislation in force at the time!
- Once all of the respective family members are talking and having an open discussion, I help them understand that although this is a tough and emotional process, the actual financial and legal mechanics required can be relatively straight forward.
The more time we have to help families work through this process, the more creative things we can do. For instance, a joint last-to-die life insurance policy may be a cost effective way to conserve or equalize an estate. But waiting too long to apply for coverage could result in health issues that would make this option too expensive or not available at all.
Also, using strategies such as incorporating, investment HoldCos, family trusts, etc. need time and careful planning to be the most effective. I work with trusted financial and legal professionals, as well as with tax and estate planners, to ensure whatever strategies are put in place are the right ones with no hidden issues.
Most farm families today have the majority of their wealth tied up in the value of their land, which often comes with significant capital gains tax liability on the last parent’s death. I haven’t met anyone wanting CRA to be a significant beneficiary when they pass on. I pointed this fact out to my in-laws that stirred them on to let me help with their estate planning needs. I came up with a creative solution to minimize the tax hit on their final estate, in an affordable manner.
It’s human nature to put off tough decisions, which we are all guilty of. But don’t wait until sickness or disability forces you into decisions that are less than ideal. Elaine Froese, a farm family coach, has a blog to check out for articles relating to transitioning your farm. You have taken a life time to build your farm operation, so why not take the time needed to sell or pass it on intact with minimal tax liability?