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Transitioning the Family Farm: Reasonability and the law of unforeseen consequences

November 30, 2018

Transitioning the Family Farm: Reasonability and the law of unforeseen consequences

Synopsis
3 Minute Read

MNP’s Bob Tosh discusses the reasonability and the law of unforeseen consequences when transitioning the family farm.

Family Business Advisor

One of my strict rules when dealing with the transition process of a family farm is to include ALL the family members and to speak to them on a one-on-one basis. I do this so I have a full understanding of the views and issues faced by them all. This includes children not active on the farm — and I am often asked by parents why it is necessary to speak to them.

The first thing to note is that including children not active on the farm does not confer a right by them to demand equal share. It is simply including them in fair process which can help them understand why outcomes have been planned in certain ways and hopefully lead to a consensus agreement.

Entitlement is a challenging emotion and can cause great distress for families. But entitlement is not a trait only confined to children not active on the farm and an all-inclusive process does not pander to entitlement. In fact, the opposite, where entitlement sentiment is uncovered it can be dealt with at an early phase of the process.

One of the fundamental challenges with farming is that it is a capital-rich, cash-poor business and many farmers are keenly aware that the business cannot survive the high cash demands which might be placed by children not active on the farm because of inheritance. Farmers are also more likely to place a higher value on the continuity of the business.

But not every child who wants a fair inheritance is acting in an entitled manner. Many are motivated, not by greed, but by reasonability. Remember that for all the children, the farm was home, where they were raised and where they spent their childhoods. They have fond memories and formed friendships and developed into adults around the farm. They have strong emotional bonds to the farm and want to retain a piece of that.

Also remember for some, the option to farm was not offered. Often the oldest male child still has the advantage over younger siblings, especially sisters. In some cases, sisters are not afforded the same options as the sons and there can be a myriad of reasons that prevent active participation.

In cases like these, the significant difference between the value of the farm and the value of the non-farm assets is a challenge. I realize that many farmers don’t see themselves as wealthy and don’t count the value of the land as relevant as it is unlikely to ever be sold but remember that this is a choice. And remember that the next generation of Millennials are more likely to cash in that value than any of the preceding generations, so that is an important consideration if preserving the long-term future of the farm is important to you.

Sticking with the theme of unforeseen consequences, the seemingly straightforward option of “farming children get the farm” may not always work out as planned. I have seen daughters excluded from visiting the family home by over protective spouses of farming siblings. I have seen tragedies result in the transfer of the farm out of the founding family’s hands and into the hands of recently bereaved spouses and I have seen chosen successors lose the farm through mismanagement.

What I advocate for, more than anything, is that families have open and honest discussions so that there are no surprises. These open and honest discussions should be regular events, not one-offs and they should seek to create a moral agreement which could take the form of a family statement or even the beginnings of a constitution which sets out how the family interacts with the farming business. When the family is developing these moral agreements, it should never underestimate the power of storytelling. Storytelling, especially by grandparents, uncles and aunts, can help to create the glue that holds the family together and help kids understand why things are important, especially legacy assets such as the farm. In this way we can avoid the fear of inclusivity and focus on the power of the family bond.

Bob Tosh, PAg., FEA ,is a farm and family business advisor with MNP’s Consulting group. Drawing on his experience in succession, strategic planning, cash flow projections, cost of production analysis and overall farm business planning, Bob has enhanced farm businesses throughout Saskatchewan. He can be reached at 306.665.6766 or [email protected]​​

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