July 1999 volume 3, issue 2 

Few decisions are as important — or as overwhelming - as determining the future of the family farm. More than just a job, farming is a way of life, and a demanding one at that. Seven days a week, 365 days a year, farmers’ lives are intertwined with their land and livestock. It’s no wonder then, that when the time comes to pass the family farm from parent to child, there is a certain level of worry and anxiety.

But intergenerational farm transfers — or succession planning as it is sometimes called — need not be a stressful experience. By exploring your options and developing a tax-efficient plan, you can prepare for the future without, as the saying goes, losing the family farm.

open the lines of communication
An important first step in succession planning is engaging family members in open and frank dialogue about the future of the family farm. During the discussion, parents, children and spouses should be completely candid with one another about their goals and plans. Where do the individuals involved see themselves 15 or 20 years down the road? How committed are the children to taking over the reins of the family business?

At the same time, parents must consider their own options. Are they ready for retirement or are they still in the planning stages? How much control, if any, are they prepared to hand over to the next generation of the family and when?

The sooner this discussion takes place, the sooner plans can be made for the family farm. Retirement may seem light years away, but thinking ahead can save money and emotional strain when all family members are working toward the same goals.

lay the groundwork for succession planning
Once open dialogue has taken place among family members, it’s time to begin considering how the intergenerational transfer will take place. Farmers who wish to learn more about the process may attend planning seminars sponsored by the Ontario Ministry of Agriculture and other organizations, or read through industry publications that focus on farm transfers.

surround yourself with a team of professional players
The key to planning a successful farm transfer is surrounding yourself with qualified experts who can help guide you through a maze of possibilities. Important members of the team could include your tax advisor, lawyer, insurance agent, banker and succession planner. Together, these specialists can provide a well-rounded core of business advice.

You should consider appointing a captain to lead your team. For best results, you’ll want to select the individual who is the most knowledgeable in the area of intergenerational transfers, with a strong background in farm estate planning. Backed by a team of business professionals, you are well on your way to achieving succession planning success.

consider all the options
Given that each family is unique in terms of its circumstances, dynamics and desires, one family may approach farm estate planning very differently from the family down the road. Fortunately, there is a tremendous amount of flexibility provided under the Income Tax Act. In fact, many sections of the Income Tax Act were written with farm owners in mind. Understanding the importance of these related tax sections could mean significant savings when it comes to your own farm transfer. With the help of your succession planning team, your task is to sort through the many possibilities, and determine which one is the best for you.

When it comes to passing down the family farm, there are many questions to ask yourself. Will I phase out of farming operations gradually or quickly? Do I want to be paid cash up-front for the farm, or will I work out a long-term payment plan? Will I give part of the farm away? Should I do it now, later or on my death? How will my spouse be looked after? What about the children who are not staying on the farm? What about the $500,000 capital gains exemption or the intergenerational rollover provisions? What about family law? Should we be operating as a sole proprietorship, partnership or corporation? How much is Canada Customs and Revenue Agency going to get? (As little as possible!)

Exploring the advantages and disadvantages of each alternative, with the help of a qualified expert, can pay dividends in tax savings and peace of mind.

Passing on the family farm is a reality that faces all farm owners at some point in their life. As the “baby boomers” of the farming community near retirement, the question of succession planning is becoming increasingly important. The key is not to hold off on succession planning until it is too late. For best results, sit down with your family today, and set some realistic goals for the future. With a little help from the professionals, your farm transfer experience can be the beginning of an exciting new chapter for yourself and the farm you have worked so hard to build.

Jerry Silverthorn, CA, TEP, (1942-2005) was the Practice Leader of the Forensic Division of Wilkinson & Company LLP , and a specialist in the area of farm estate and succession planning. Born in Dunnville, Ontario on a family farm, he owned a pure bred Limousin operation in Prince Edward County since 1977.

Jack Shorey, CA was a general practitioner with Wilkinson & Company LLP. A lifelong resident of Thurlow Township, he has a significant number of farm clients, and has been involved in the transferring of local family farms for several years.