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Your checklist to kickstart transition planning

Progressive Dairy Editor Emma Ohirko Published on 03 May 2022
Piece of the pie

Many farms and farmers in Canada share the same goal: to see their farm transfer successfully to the next generation so they may reap and improve upon the benefits of the farming business built up through decades of hard work and dedication.

Despite this commonly held objective, a mere 8.4% of farmers have developed a written succession plan. For all generations, this raises questions surrounding the challenges and viability of successful farm succession, especially with farm values higher than ever and an increasingly unpredictable future.

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These concerns over the ability of farms to transition successfully were highlighted by Maggie Van Camp, national agriculture practice development leader at BDO; and Andrea De Groot, business adviser with Farm Credit Canada. The pair presented at this year’s Grey Bruce Farmers Week on Jan. 6 and work closely with farms to provide tips on successful transition planning. During their presentation, “Taking Stock: 7 Things to Prepare for Transition Planning,” they shared a checklist including seven areas worth your attention to ensure transition planning gets off to a strong start.

1. Act now

As with many tasks in life, getting started can be one of the most difficult or time-consuming steps in the process. Often, the transition process is an evolving one, so starting early with something small can make each future step more manageable. De Groot suggested beginning with a written record of who is part of the family – taking note of legal names – which family members have roles in the farm and how those roles are defined.

“Take some time; there are a lot of actual notes and organization that can go into this. This is your space to get yourself organized. I would also encourage that not just one person does this, but that this be a contribution from both [or all] senior partners, so you’re [all] putting your time and effort into making sure you have the information you want,” De Groot explained.

2. Evaluate and record farm assets

Pencil

“Grab a piece of paper and list out your farm assets. Let’s say you start with your farm’s specific real estate, with the lot, the concessions (so the legal names) and who owns it,” De Groot advised. Essentially, this will become the foundation for your farm’s asset catalogue and may include personally owned and farm-owned assets alike. For each key farming asset, De Groot recommended noting ownership, legal details, year purchased, original purchase price and estimated current market value.

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Additionally, both De Groot and Van Camp noted this step as a good time to reflect on the positive progress your farm has seen over time. “It’s not [a matter of] ego, but it’s just a time to breathe in that moment and let it inspire you to do succession planning well, because there are huge tax savings you can make with this kind of information,” Van Camp said.

3. Create a personal net worth statement

“The next step is a personal net worth statement … it’s useful for any kind of off-farm investments, and it basically helps people understand that they are more than just their farm,” Van Camp explained.

The goal of a personal net worth statement is to serve as an understanding of your personal worth in terms of dollar value. This should include items like investments, personal liabilities, RRSPs, recreational properties, personally held assets such as vehicles or life insurance policies, heirloom items and farm assets. Work with your spouse to create a statement together in either a ledger or a spreadsheet. Lastly, include the date of statement creation and think of it as a current estimate to be revisited and revised in the future.

4. Get into the habit of reviewing and updating your will

desk

Before reviewing your will becomes a habit, you must first ensure you have worked with a lawyer to put a will in place. “Everyone 18 and above needs a will,” De Groot declared.

“Experts say you should review your will every five years, or when you have a major business change, which is something that happens all the time on farms. Take your time to pull it out, read it through and make sure it still jives. Make sure it will work with your potential succession plan going forward and make sure you have [a will],” Van Camp advised.

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A will should address key goals, establish power of attorney and describe any health care wishes.

Another living document to prepare is a list containing passwords, the contact of your financial planner and the location of keys and important documents. This will give your family access to these tools after your passing.

5. Lay out your cost of living

Determining a cost-of-living budget will help you plan for the lifestyle you want to uphold throughout your retirement and into the future. The first step is to calculate your current cost of living and how your cost of living today might look if you did not claim any expenses through your farm business.

“This is really important going forward because you need to use this as a base for compensation and, I think too, as a baseline for figuring out compensation for your family,” Van Camp said.

6. Check in on your farm’s viability

Coffee

To understand, and later explain to others, the financial health of your farm business, you should be able to answer the three following questions:

  •  What is your farm’s net income?
  •  What is the debt servicing capacity of the farm?
  •  How do your farm’s five-year trends in overall productivity look?

7. Don’t forget to dream

“The idea is that you are now in a position to start thinking beyond the current tasks you do on a day-to-day basis. I know farms are insatiable but, once a week, pick a time and really dream about what you think your farm should look like in 10 years or when you plan to retire. What would that look like? Pick it out and try to dream [it],” Van Camp suggested.

Without narrowing in on too many details, begin thinking about how this dream or vision might impact farm management, decision-making and labour.

“It’s important to remember when we are in this phase, when we’re in this time of dreaming big, that this is an open conversation. There are no right or wrong answers at this point; there will be compromise on both sides; there are lots of conversations yet to come. This is a starting point,” De Groot explained. end mark

ILLUSTRATIONS: Illustrations by Corey Lewis.

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  • Emma Ohirko

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  • Progressive Dairy
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