This blog was written by Maggie Dalke – Estate and Trust Consultant with Scotia Wealth Management
There are a significant number of agricultural producers that require estate planning services. According to a 2016 Statistics Canada report, there are 193,492 census farms in Canada. Many agricultural producers are reaching retirement age with the average age of farm operators being 55 years and older.
A big 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.
So, what are some unique themes to remember when advising agricultural producers?
- A farm or ranch is not just an asset; it is a home and 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 and dad, and 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, or what I like to call 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.
- Fair is not always equal
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.
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 with.”
- It is never too early for a family to start estate planning conversations
I believe any family with the proper planning and professional services can avoid family feuds, expensive court costs and the end of the family farm. It is important to talk early and to talk often. Without these estate planning conversations there is a high risk of delayed farm transition which could lead to family conflict and litigation.
Estate planning, especially for complex assets, like farmland, 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 knowledge.