Tips for intergenerational wealth transfer on the farm
By ATB Financial 4 August 2023 5 min read
Farmers are great at talking about business issues like crop choices, land transactions and market trends. But they often find it tougher to dig into more personal topics, like who’s going to take over the farm and when, especially with close family members. To ensure successful intergenerational wealth transfer for your farming operation, it’s never too soon to start planning.
In fact, Amanda Vella, Business Advisory and Transition Consultant at ATB, points out that, despite the increasing age of farmers, only 12% of Alberta farm operators had a succession plan, according to Canada’s 2021 Census of Agriculture.
“We recognize it’s a very emotional process for business owners and isn’t easy for them,” says Vella. “But we think it’s necessary because only 50% of business transitions happen on the owner’s timeline. The rest happen as a result of death, disability, dispute with shareholders or other unforeseen circumstances. So it’s really important that these plans are in place to protect your family’s wealth.”
Here’s how you can get started with that planning—and ensure the farming business you’ve spent your life building is protected for future generations.
Create your recipe for success
In his extensive career of wealth planning, estate and trust work, Trent Hamans has seen both the benefits of estate planning and the risks that come from not planning well.
As ATB’s Vice President of Private Banking and Wealth Planning, Hamans provides guidance for business owners working through the succession planning process.
He likes to compare wealth transfer to a great meal.
“There are three components to a great meal. You have to have great ingredients. You have to have a great chef. And you have to have a great recipe. If you don’t have those three working in concert, you’re probably not going to have a great meal,” he says. “The same applies with wealth transfer.”
Your own “wealth transfer recipe” includes the estate planning documents, like a will. (Did you know only 55% of Canadians have a will?) As well, there is a personal directive, the enduring power of attorney and other business documentation, such as unanimous shareholder agreements.
Hamans stresses that, in addition to having these documents, you must also ensure they’re up to date.
“I’m frequently asked, ‘How often do I need to go back and have a look at these documents? ’I say, at the least, whenever you have a life-changing event,” he advises. “Maybe you lose a parent, maybe you have an addition to your family. There’s a divorce in the family. Those are events where you want to have a look at the documents to make sure they’re still appropriate.”
Your recipe should also consider the tax implications of wealth transfer, especially when it comes to using the capital gains exemption. Vella says that can take time and forward thinking to enact. Plus, there can be government policy changes on the exemption that you’ll want to work with your accountant to keep updated on.
Use the right ingredients
Ingredients can make or break the meal. For a successful transfer of wealth, ensure you’re working with all the right ingredients. Hamans considers those your assets—land, investments and business interests— as well as your liabilities, like loans and taxes to be paid on death. These elements are easily quantified. But, in his experience, the more valuable ingredients aren’t quantifiable: the people, their relationships, your values.
“What are my relationships like? What are the values I want to instil in my children?” Hamans says. “Those are very, very important ingredients to a successful intergenerational wealth transfer that aren’t captured in the will or personal directive. But they are an essential part of that family conversation.”
Hamans encourages farmers to spend time thinking about what's really important to them, what values drive them. Then share those principles with family—and live them every day.
Bring in the chefs
The chefs are the ones who bring it all together. Hamans describes the “chefs” of wealth transfer as the people who support you in life, and who will represent you when you’re gone. They’re professionals you probably already have in place, like your lawyer and your accountant. But what about your executor? Naming an executor is a critical decision that may require more thought.
“It’s a huge responsibility, the role of an executor,” emphasizes Hamans. “An executor wears five different hats.”
When considering who your executor could be, consider who might most comfortably don these five hats:
- Lawyer—They have to navigate the will and understand the laws governing it.
- Accountant—They must report to beneficiaries and file tax returns.
- Private investigator—They may have to look for missing assets or missing beneficiaries.
- Risk manager—If anything goes wrong, and if they’ve been negligent, they’re personally liable for the resulting losses. “Is the house insurance contemporary? Is somebody driving the car who shouldn’t be? That’s risk management, Hamans explains.
- Social worker—They’ll be dealing with family members who may not get along with each other. “The executor has to go into that deep end. So, if the party who’s passed away hasn’t focused on those relationships, and hasn’t focused on those values, it’s the executor who’s probably going to have to clean it up.”
Communicate, communicate, communicate
Both Hamans and Vella stress the importance of communication as a foundation for farm succession and wealth transfer planning. The process requires clear communication of your plans and desires with both your professionals and your family.
“It’s easy to assume a child or somebody else wants the business, but that may not be what they really want,” says Vella. “So it’s important to have those conversations.” Because every family has a unique dynamic and this could be a challenging conversation, Vella suggests having somebody facilitate it. Not all lawyers or accountants want to navigate family discussions, so it may be another kind of advisor whose sole purpose is to facilitate the discussion and develop a written plan for how you want to exit your business.
Get ready for go time
Are you ready to plan for your farm’s future? Vella and Hamans suggest starting with the ATB Farm Transition Planning Guide. It covers these topics:
- Gifting versus selling
- Equal versus fair
- Lifetime capital gains exemption
- Credit options
- Intergenerational transfers
Vella likes that the guide shares stories that will resonate with farm business owners.“Farmers can relate the case studies to their own situation,” she says. “It can help them start thinking about what makes sense for their family.”
And—because life can be unpredictable—the best time to start thinking about your farm succession planning is now.“I’ve met so many people who have said, ‘Oh, I’ll get it done when I need it.’ You don’t know when you’re going to need it.”
Start thinking about your meal now. What does your recipe look like? Who are your chefs? And what ingredients are you working with? By doing this important wealth transfer planning now, you're ensuring a successful future for your farm, and your successors.
It’s time to make a plan. Download your ATB Farm Transition Planning Guide or speak to an ATB ag expert.
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