With the crop in the bins, fall work completed and the fall run of cattle leveling off, this winter might be the time to start the conversation with your family about sale or succession planning. This is something that is applicable to both farm and small business families. Many of our farm and small business owners are getting up in years, so talking about these issues with family members is a good place to start. As a British farm boy myself who spent my first 27 years working with farm families including eight years as a partner in a farm equipment dealership, I like to think that I have a deep understand of farming.
I have touched on the urgent need to plan ahead in several articles over the years. It’s too late to plan if time runs out due to sickness, disability or premature death. It takes time for the ownership generation to acknowledge the need to start into the planning process, then it takes time to develop and then implement a plan. Most of us are guilty of procrastinating on issues that require talking to family members about money, plus many are reluctant to give up control of something they spent a lifetime building. Another 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 common for many of us to get into a rut in life.
There are plenty of examples of the issues that arise when farm and small business families delay starting some level of succession planning, whether for transition to the next generation or sale to a third party. Today, with so much of a family’s net worth tied up in land or business assets, just the potential tax liability should be enough to shock people into action. Considering that some 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 owner families, like all things that CRA allows, comes with some very specific rules and requirements in order to qualify. If given sufficient lead time, a financial advisor working as a team with accountants, lawyers, tax specialists and other professionals, can develop options tailored to a family’s specific needs.
This process seems like the old saying “How do you eat an elephant? One bite at a time.” And one might add, over a long period of time! It all starts with a thorough review of a host of financial information, often some tough discussions as to what each family member’s hopes and dreams are, then developing a custom process to start implementing your plan. It’s often 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 review, who can help kick-start and quarterback the process with other professionals to develop the right plan for your family.
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