What is Farm Transition Planning?
Farm transition planning or succession planning is the future of your family farm. It’s understanding your intentions or expectations for when you want to start slowing down, when you no longer intend to farm, or in the event you cannot farm.
It's about coming up with a plan or roadmap to create a strategy that implements your vision, rather than having to deal with any unforeseen farm succession problems.
Options For Farm Succession Planning
Typically, the options open to a farm owner can be boiled down to three scenarios, although there are many potential variations.
1. Succession or transfer.
This is where the farm is transferred to a family member — the most typical example is where a child or children take over the farm operation.
2. The farm is sold.
In instances when you do not have a child or grandchild who is interested or available to take over, or if you don't want a family member to take over, looking for a third party to buy the operation is an option.
3. Winding down your farming operation.
This scenario involves winding down or eliminating work or your workload, selling assets such as inventory, livestock, equipment, real estate or quota, and being left with capital to fund your retirement.
Where to Start Your Farm Transition Planning
The most important consideration is to realize that at some point, you will be faced with relinquishing the control and management of your farm.
Once you come to this understanding, you need to decide whether you intend to farm for your entire life, if at some point you intend to slow down but still be involved to some degree, or whether you plan to hand the reins to someone else for them to completely handle the daily affairs moving forward.
How you intend to move forward dictates the steps to be taken, and planned, to ensure your succession planning produces the most successful outcome for everyone involved.
Most farming operations are intended to be succeeded by or transferred to children. In many cases, children become the retirement plan, so it is imperative not only that your successor has farming knowledge and the ability and desire to farm, but also that it is what they really want to do.
If your children are going to be part of your retirement plan, it is crucial they are interested in farming, rather than simply expecting this of them.
Communication is key. Have a relaxed conversation with your child to find out what they want for their future. If they have a similar vision and interest in pursuing a farming lifestyle, this opens the door for you to outline your ideas — what you would like to happen, how you see it happening, and what expectations you have.
Having this conversation is an opportunity for you to confirm you are heading in the right direction. There are several things to consider and plan for moving forward. It all starts with a good family meeting.
Communicating your wishes can ensure a successful transition of your wealth for generations to come, as well as assist with understanding and adopting your wishes, but most of all, helping maintain family harmony.
What Else To Know About Succession Planning
Here’s a summary of the things to consider when planning.
What do you want to do with the next phase of your life?
Where do you want to live?
How much do you need to live and where will your income come from?
Will the family farm be able to support you and the successor?
How do you see moving forward with the transition process, and what it would look like?
How do you intend to treat non-farming children?
What are your estate considerations?
You also need to determine:
How prepared are your successors — both their farming skills and financially?
What is the current legal structure of the operation?
What is the financial position and performance of the farm?
What the risk management issues are and how to deal with them — these can include death, disability, divorce, disagreements, or departure from the farm
At first, this may feel overwhelming — however, working with a Financial Planner helps address many of these concerns and farm succession problems.
Guidance in Transition Planning
While the family members directly involved in the transition of your farm represent the core of your team, you also need the expertise of various advisors and professionals to support you throughout the process. For example, a financial planner, account manager or lender, an accountant, and a lawyer.
Other partners or experts may be required based on the complexity of your operation, such as an agrologist, realtor, or veterinarian, just to name a few.
How Can Libro Help?
People choose Libro because we’re different. We go well beyond the usual farm and business banking. We are locally owned and operated, and we truly understand the needs of farmers in southwestern Ontario.
We’re committed to offering farm and business transition planning services as a value-added service. If you’re not an Owner of Libro today, that’s okay. We’re happy to have an introductory conversation on these important issues, and we can talk about how we might work together going forward.