Opening Books and Minds: Astute Farm Succession Planning

by Darrell Wade

Farming, like any other business, requires a clear vision and a formal plan to ensure it thrives from one generation to the next.

And since the idea of finding unanimous consensus between generations of family members may feel like being pulled through a knothole in a fence, involving a trained professional to guide you through this process will make the process manageable and, based on my clients’ feedback, even enjoyable.

Many farm families I’ve worked with in creating a succession plan have said that without the expertise of a third party, they probably wouldn’t have ever started or completed with a formalized plan. They certainly wouldn’t have reaped the benefits gained from tax and estate planning strategies from professional advisors.

What is a Succession Plan

A succession plan creates a solid business plan for the transition of the family business from one generation to another. It clarifies and quantifies the combined skills, goals, and stakes for all involved, including those family members who want to pursue careers off the farm. It recognizes how to achieve fairness for non-farming children and provides clear tax and estate planning recommendations. Insights gained through the process of succession planning allows families to shape the direction of the business, allocate resources efficiently and leverage everyone’s unique abilities to best position the farm for continued success.

In my website series, The Succession Advantage, I outline four essential stages required for developing a healthy farm succession plan and I’ll touch on them here:

1. The Communication Advantage

The Communication Advantage comes from respectful conversation and results in aligned vision and agreed upon goals for the farm’s future.

Meaningful conversations help resurface family values to create an aligned vision for the farm’s future. It’s essential that family members establishing and agree upon a firm commitment to respectful conversations and discussion of goals, assets, and priorities (both personal and financial). Succession planning meetings should be handled with the respect and standards given to any business meeting. Share individual visions of success and goals for each member’s future, including whether they would like to be involved in the farm’s future. Engage in personality assessments to better understand individual strengths and how to leverage and unlock their potential. And finally, build a business assessment; it can be as simple as using the SWOT method (strengths, weaknesses, opportunities, threats), which will likely reveal where visions are aligned and where gaps remain.

2. The Financial Advantage

The financial advantages become more tangible when starting succession planning early and include tax savings, peace of mind, and financial security for the family and the farm.

There’s the difference between what the farm is worth and what the next generation can afford to pay. Add to that multiple family stakeholders, some farming and some non-farming children, and it can get messy. This can be a difficult stage but an essential one for clearing up what are often muddy areas of what it takes for one generation to enter the business and one generation to exit. Each generation holds a unique perspective on the correlation of asset value to debt and common conversations often involve opinions around balancing the needs of the farm business to grow with the financial needs of the exiting generation.

3. The Transition Advantage

Strategic business planning for a family farm operation requires committing time, emotional honesty and pragmatic decisions.

At this stage of the planning process, professional teams have collaborated to provide options for the family to reach their goals. These options clearly quantify tax savings and the impact of creating the necessary change today for the farm’s future, identify and provide recommendations to fill any gaps in the transition milestones, and allow for best-informed and tax-efficient decision-making. The role of the farm advisor here is to walk the family through these options and find consensus to help implement the plan. Earlier conversations about everyone’s goals for the future allows each family member to receive what works best for them and their families, and for the plan to align with the family’s vision for success. Priorities should start with planning early (saving potential negative tax impacts) and channelling the farm’s resources toward the new vision.

4. - The Succession Advantage: Planning to the Finish Line

Sitting down with a family and discussing the long-term vision for the farm and who wants to be involved, provides insights about children’s goals and commitment and requires initiation of knowledge transfer.

This phase deals with the nitty gritty of the transition plan and involves creating agreements, estate planning and maintaining ongoing family governance.

When families understand their values around time and money this part becomes rewarding for all generations. It creates family harmony for those who haven’t participated in the business while providing a roadmap for the incoming generation and an exit plan for the outgoing generation. Families are strongly encouraged to update their wills and ensure they have their plans aligned and changes documented to fit accordingly. Perhaps the biggest advantage is plan early. Plan now, when we know the tax rules and have the ability to work within them.

The best time to start succession planning for your farm is today.

The two best pieces of advice I can give to any farm family is to plan early and engage with a professional team. The opportunities to dig into family farm continuity, finances, vision for the business and what transition means for each family member are tough but crucial conversations.

96% of our clients see a significant value of tax savings.

93% of our clients pay less money than using services elsewhere.

92% of clients who start their succession process with us see completion within two years. I am proud of the work my team does every day to help farm families have courageous conversations about the future of the family farm. And for the 22 years I’ve been doing it, there’s no comparison to the peace of mind of helping a farm family complete their plan. For the sake of family harmony, and the future prosperity of your farm for generations to come, commit to planning and pick up the phone. You’ll never regret it.

Darrell Wade

Founder

CAFA Member

Family Enterprise Advisor

Darrell grew up on his family farm in southern Ontario. A successful family farm business until they suffered a sudden loss of his father. His family faced the consequences of the right things not being planned for on his family farm. His father, like so many farmers today, didn’t take the time to plan for the “what ifs” with his professional team and he didn’t communicate his intentions. With the sudden passing of his father there was no legacy for the family farm business. Darrell then joined the financial services industry where he now dedicates his time to helping other family-owned farms implement customized succession plans. His mission is to ensure no other family experiences a loss like his family did.

Darrell is the founder of Farm Life, which helps clients across Ontario find stability on their farm and ensure the farm can live on for future generations to come. His role is to empower farm families to keep farming and ensure there is family harmony when building tax efficient succession plans. He is certified by the Canadian Association of Farm Advisors and is a certified Family Enterprise Advisor.

Darrell enjoys spending time with his wife Liane and their 4 children, Dylan, Cameron, Sydney and Kayden. They live on a farm east of Peterborough.

Farm Life Financial was founded in 2015 by Darrell Wade with the vision to help farmers find financial stability

on their farm and ensure the farm can live on for future generations to come. That includes a comprehensive succession plan that builds family harmony while protecting the farm legacy. Farm Life’s approach builds out tax efficient financial and succession strategies to educate and empower farm families to keep farming.