Are You Ready To Pass The Family Farm On To The Next Generation?

If you’re a Canadian farm owner over the age of 60, you’re part of a growing group. According to Statistics Canada, there are now more Canadian farm owners in your age bracket than ever before*. Whether you’ve reached your sixth decade or not, you may be thinking of retirement – and of what you’re going to do with the family farm.

You probably want the farm to stay in the family – but which of your children should get it … and where does that leave your other children? Then, there’s you and your spouse -- the choices you make can have a huge impact on the level of your retirement income. They can also affect the amount of taxes your estate will pay.

Farm succession planning is a process without a one-size-fits-all solution. A farm transfer and estate plan could help smooth the transition from one generation to another, ensure you get the retirement income you need, and limit estate taxes. Here are some basic steps to developing the plan that works best for you:

• Review your current situation – the net worth of your family and your farm and your current cost of living.

• Sit down with your spouse and budget what your retirement expenses will be. If you intend to move off of the farm, you may incur expenses that you have not experienced before such as rent, condominium fees, and municipal taxes including cost for water and sewer. And, don’t forget about replacement of your vehicle every 5 to 10 years. Strive for financial security -- not simply transferring the farm to a child as quickly as possible.

• Determine the most appropriate sources of retirement income for you and your spouse. Would it be better to live on buy-out payments from your farming children (supplemented by investment income) or should some of your income come from your continued involvement in the farm? Keep in mind the potential cost of debt servicing to the farming children.

• Get everybody involved – you and your spouse, your farming children and non-farming children. Ask each person, “What does the farm mean to you?” You may be surprised at the answers. By taking each person’s hopes and expectations into account, you’ll avoid future disagreements and ensure family harmony after your death.

• Treat all of your children fairly and equitably – but not necessarily equally. Consider life insurance as a useful tool in funding an equitable distribution to your non-farming children and/or covering estate expenses.

• Preserve the value of your farm by ensuring it (and your estate) qualifies for all the special tax reductions available to you – especially the $750,000 capital gains exemption for qualifying family farms and the tax-free rollover of farm assets to children through various forms of equity transfer.

Tax laws associated with farms and succession are complex. Be sure to get expert advice from your lawyer, accountant and financial planner who can quarterback your team to succession success.