There has been no shortage of discussion around the need for succession planning in the farming industry. Industry observers have been dismayed by findings such as Statistics Canada’s report that roughly 92 per cent of all Canadian farms do not have a plan in place.
However, the consequences on a farm and indeed on a family, if those plans are not in place, can be devastating. Lack of a succession plan has torn families apart and torpedoed relationships. Some of those relationships took years to restore. Some were never restored.
Darrell Wade, founder and principal advisor for Ontario’s Farm Life Financial Planning Group, knows how such an occurrence can throw things into disarray first hand. He grew up on his family’s farm in Southern Ontario; when his father suddenly passed away in 2000, there was no plan in place. Wade’s father had never taken the time to plan for the potential ‘What ifs?’ and hadn’t communicated his intentions. The experience drove Wade to his current career, wanting to ensure that no other family experiences a loss as his did.
“The consequences are leaving a family without clarity, the clarity of continuity, a vision — if this happens, this is what you do,” says Wade. “I work on a daily basis with families on continuity to try to be proactive instead of reactive, to try to prevent surprises.”
George Sinker is a lawyer working in real estate, succession, transitions and estate planning with the Canadian Association of Farm Advisors. Speaking from his office in Strathroy, Ontario, Sinker cites a case that went as far as the Ontario Court of Appeal. It concerned a dairy farm that had been in a family since 1830. The family’s son worked full time on the farm for 24 years and claimed he had an oral agreement with his parents that if he stayed on the farm and farmed it with them that he would receive the farmland and all the assets after the parents stopped farming.
“Of course, Mum died and left everything to Dad,” says Sinker. Then Dad died and the farmland and most of the assets hadn’t been transferred to the son before his dad’s death. The son brought an action for declaration that he was beneficially entitled to the farm property and farm business and the trial judge found that the son hadn’t proved this oral contract.
They had had discussions with their accountant, the accountant had notes of those discussions, yet no one had ever implemented the plan. Since there were only two children, the son had felt that the non-farming daughter would not object to this, but unfortunately when Mum and Dad were both gone, the gloves came off and the sister said, ‘I want half the estate.’”
The father in that case died in 2001. The family was still working out the exact details on a settlement as of 2015 — nearly 15 years of legal battles that may have cost hundreds of thousands of dollars in fees.
“We have an Ontario primary and secondary will, so you can do wills if you have corporate assets, I think we charge about $1,700 for those corporate primary and secondary wills,” says Sinker. “It was $1,700, plus the cost of doing a succession plan and physically doing the land transfers. Let’s say they’d spent $15,000. Fifteen thousand dollars is a small price to pay compared to $150,000 in legal costs and your sister not coming to Christmas dinner.”
Sinker emphasizes transition planning rather than just succession planning. A succession plan can be just a will that says to whom an asset owner wants property to be transferred — transition planning is a more wholistic approach, bringing together all parties involved to work on a detailed plan so everyone is on the same page.
“People have to be taught the management skills to operate the business,” says Sinker. “They don’t just have those on the death of the father. You can transition the ownership skills because people need to understand what it means to be an owner, what are my responsibilities as an owner? You can transfer the leadership skills. What does it take to be a leader? How do I build trust? How do I communicate? It means preparing the next generation for leadership and, perhaps, if you don’t have a succession plan, at the very least, you should be making those preparations along the way.”
There are other considerations beyond who gets what and who is responsible for what. Ron Bonnet, president of the Canadian Federation of Agriculture, notes that taxes must be planned for as well.
“It could really damper the next generation taking over that farm if the proper tax planning hasn’t taken place,” says Bonnet. “If the tax man comes without a proper tax plan being in place, it could have a huge impact.”
Bonnet also knows firsthand how challenging these issues can be after the fact — his own father passed away before they had a chance to have those difficult conversations.
“It did create a lot of family problems after he passed away because there was no plan in place and it becomes a matter of, okay, who gets the farm and how much should the rest be paid in? That’s one of the tragedies, is sometimes it takes a number of years to get over some of those issues that really go in and form a wedge between family members and really work through the sort of who gets what. Once money gets involved, sometimes it puts a wedge into families, very tight families.”
In response to these issues, Bonnet notes that Canadian Farm Business Management has been diligent in putting on seminars and webinars to raise awareness and to educate about the need for succession planning.
Doug Jacobs, an auctioneer from Ontario with 40 years’ experience in helping to sell agricultural land, adds that he’s seen a great many similar seminars and outreach efforts which have greatly improved the situation.
“We don’t see a lot of big problems with it,” says Jacobs. “[You used to see cases] where one boy stays at home and farms and two others go off to work off the farm. Then when the time comes when dad passes away, if things aren’t set up properly, or haven’t been discussed beforehand, the two who left the farm all of a sudden think they’re entitled to as much as the one who stayed on the farm. There used to be a lot of that. I would say back 20 or 40 years earlier, there were a lot more problems than there are today.”
Wade does his part to promote the importance of proper planning as well. In addition to speaking at AGMs and conferences, he provides individual consultations with families who need succession plans. Sharing his own story of sudden tragedy and family hardship can be a powerful tool to reach people who refuse to open up about the issue.
“What I say to people every day is, ‘It’s your life and it’s your business and it’s your family,’” says Wade. “’You’ve built this. It could possibly be three or four or five generations’ worth of work. Shouldn’t you take a few minutes to figure out how you want it to be planned out, meaning who’s going to get what, and how and when?’ Our family didn’t have that chance.”
- Matt Jones