There are a significant number of Agriculture Producers that require transition planning
services. According to the 2021 StatsCan report, there are approximately 190,000 farms in
Canada. Many of these farmers are age 56+. A huge consideration for many of these farms will be whether they have a successor to transfer the farm to, and how this succession will happen. It is a significant life transition for the family. A team of advisors with knowledge of the culture and business is key for a successful transition plan. Here are four key themes to keep in mind:
1. A farm or ranch is not just an asset; it is a home and a livelihood
A home quarter is just that – it is someone’s home. And sometimes it can be the home of more than one generation of a family. Perhaps mom, dad, son and daughter-in-law all live on the same quarter. This multigenerational home can lead to complex estate planning discussions with various members of the family.
Besides being a home, a farm or ranch is also a business asset, often referred to as a ‘career
asset’. And how is it a career asset? Young farmers usually begin their careers using farm
property owned by mom and dad. They may put years of sweat equity into the operation,
relying on the underlying asset for security and income, sometimes without gaining ownership of that asset.
Without the land base, a producer would not be able to make a livelihood (and it is not easy to find additional land to rent if some of the land base is lost). The land is integral to making it a viable farming unit and for sustaining the child’s career. This is why the transfer or bequest of the farm is such a significant question for farming children and why transition discussions should occur often in the course of a farming career.
2. Unique tax advantages with respect to qualified farm property
Minimizing Tax, Business Transfer, and Estate Costs. Family farm property can be transferred to a spouse or common-law partner, or next generation(s) by “rolling” it over – without tax. On a sale each owner is eligible for up to $1 million dollars capital gains exemption.
It may not be practical for the farm owners to “roll” (tax-free) all their farm property to the
successor farmer. Some level of financing may be necessary to access capital for the parent’s retirement and/or fair estate distribution to non-farming children. Financing could be in the form of traditional equity-based financing or insured financing arrangements. Both are readily available for family farm transition.
3. Fair is not always equal- recognizing the non-farming children
Over the last few decades, the value of farmland has increased significantly. This has been hard for farm families to plan for, with both farming and non-farming children in mind. It can be easy from the outside to see the huge asset value of farmland, but not appreciate the economics that go behind farming. Farming is a capital-intensive business. It is not uncommon to hear a farmer or rancher say they are “land rich, but cash poor.” Without a lot of liquidity, this can make it challenging to provide for non-farming children through a will, while also passing on a viable operation for the farming children.
There are different options to provide for estate balancing. If there are some parcels that aren’t integral to the farming operation, then these parcels could be used to help provide fairness to the non-farming children. Even better would be to invest early, well before retirement. Life insurance is also an important tool to help ‘equalize’ the estate between farming and non- farming children. Insured financing arrangements are a very efficient strategy growing in popularity.
Overall, it is a good idea for the family to step back and not just look at values while stressing over ‘equality’ but what makes sense for the operation and for the family. As the adage goes: “fair is not always equal, but fair is what everyone can agree upon.”
4. It is never too early for a family to start farm transition and estate planning conversations
Any family with the proper planning and professional services can avoid family feuds,
expensive court costs and the demise of the family farm. It is important to talk early and to
talk often. Without these transition and estate planning conversations there is a high risk of
delayed farm transition, which could lead to family conflict and litigation.
Transition and estate planning - especially for complex assets - deserves consultation from a team of professionals who understand and value the uniqueness of the business. This
professional advice is key, so it is important to have the right team of advisors with the right
If your family is ready to talk farm succession, please reach out.
No obligation, just honest advice.
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