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Recently, one of my colleagues sat on the edge of a hospital bed, listening to the whispered last wishes of a new client who left planning for the family farm too late.
Succession planning under the haze of tragedy happens more than you would think and it’s a terrible and unnecessary way to decide the fate of a family legacy.
We also had clients with several adult children who wanted to take over the farm and one who didn’t. They wanted to retire but they weren’t sure whether they could and still keep the farm in the family. They came to us with enough time to put a plan in motion that saw the boys take over the farm while their daughter was not left out. She will benefit from their estate plan.
They’re retired now, the farm is doing well and it’s still in the family.
Succession planning can be difficult when it’s a family affair. Parents who have spent their lives working their land can be reluctant to think about the day they let it go. There may be several children, but enough farm for just one. Maybe children have no interest in farming life.
The lesson? Plan ahead – the earlier the better. Open discussions and a solid succession plan will put your mind at ease.
Plan A, B and C
In our experience, we have come across some 55- and 60-year-old producers who are nearing retirement and own nothing on paper. Their 80-year-old parents often still theoretically own everything. These adult children have worked their entire lives, banking on inheriting the family farm but they haven’t anticipated illness, financial loss or other unforeseen circumstances. Here they are, nearing their ‘golden years’ and every time they need money to go on a holiday or whatnot, they almost need to ask permission from their elderly parents.
This situation is far from uncommon. With the baby boomer generation well into retirement age, we’re seeing a lot of turnover of family farms and family-owned businesses. At MNP, it’s our job to walk clients through scenarios to ensure they have plans and back-up plans because, as they say, life is what happens when you’re busy making plans.
The five-year rule
It’s not too early to start succession planning at age 30. A head start allows you to do much more to prepare and build value in the business. We are seeing an increase in the number of younger clients coming in to deal with this because age and impending retirement are not the only issues. It’s also about illness or unexpected deaths.
As a general rule, all farm and business owners should have a plan in place by the age of 60. That’s such a key year because I like to have at least five years for putting measures in place – measures that can ensure a sale or transition doesn’t have a negative impact on retirement income at age 65.
Time is your friend in the tax-planning world.
For instance, a few years ago, we were approached by brothers who had been farming together. They wanted to retire and none of their children were interested in taking over.
They faced a massive tax burden which would affect their retirement plans, but they gave us enough time to plan and we were able to put measures in place that reduced their tax bill significantly.
Too little, too late
Some clients have come to us after their parents had passed away without making a transition plan and without having those important discussions with their children.
In another situation, there were multiple siblings – a few of which wanted to take over the family farm and others who didn’t. Nobody knew how they could allow some of the siblings to continue farming, allowing the remaining siblings to opt out while still receiving some of the parents’ estate. During the long process of straightening things out, one of the siblings died, which threw another hurdle into the mix. Well, thousands of dollars in legal fees and many years later, the situation has been sorted out, but is still precarious. It was an extremely painful experience for all involved.
A family affair
In most situations, there just isn’t enough farm for all the children to inherit a piece and still make a living. These are very emotional discussions to have and so many people just don’t.
Our Ag specialists understand the heart and head of the matter and they know that every situation is unique. Members of our TransitionSMART™ team will sit down one-on-one with every family member to talk about their hopes and expectations. It’s surprising how often there are expectations that don’t align, even between husbands and wives. It’s our job to get a dialogue going to work through these issues.
There are options that would transfer wealth to non-farming children or involve all children while still allowing the farm to be run by one. Life insurance or land transfers with rent-back or other caveats can ensure all children are part of the legacy without crippling the farm. At the end of the day, the operation is a heart-and-soul business that heirs want to see continue after the parents retire or pass on.
Succession planning can tear a family apart if it’s ignored but it can also bring a family closer when done right. I for one have sat through a lot of tears and been through many boxes of Kleenex in meetings where families are putting these issues on the table. Then they move forward, stronger together and on the same page.
Contact Stuart Person, CPA, CA, National Director of Primary Producers with MNP’s Agricultural Services at 306.764.6873 or [email protected]
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