AVONMORE -- If you pass your farm on to children or other family members, you want to ensure that everything you've worked so hard and so long for is taken good care of, but interfering with the next generation of farmers might harm more than it helps.
So start the conversation now. Sit down regularly and talk about plans for the future -- how to improve operations, what to maintain and what might be something to change or let go, and if done as a regular farm business-style meeting, just with the topic of succession also on the table, the conversation doesn't have to be emotional.
Some topics are harder than others to broach though, including death, disability, separation or divorce, children working off the farm, disaster like fire or flood, or bankruptcy. These are all real possibilities that if planned for, need not be as disastrous to either the farm operation or the well-being of the family, as they could be without a plan. (Preferably more than one, Plan A is not complete without a Plan B.)
Planning for the next generation was a theme at a conference on succession planning recently, with presentations from Collins Barrow, Horner & Pietersma and O'Farrell Financial Services, at the North Stormont Community Centre.
Life insurance on key personnel, like many other businesses carry, can help in the case of death or disability, providing funds to help get over that loss. Agreements should be drawn up with care and only after much discussion and consensus. They should also consider the emotions of the parties.
For example, most agreements are written so that if one person becomes disabled for a set period of time others have the option to buy that person out. But think about the hurt that can cause -- for a person already dealing with a new disability now they have to wrestle with being thrown out of the business.
Agreements protecting assets in the case of marriage breakdowns should also consider both the financial needs of the partners and the effects on children of the marriage. Currently common law relationships are not subject to equalization between separating spouses, only marriages are, but the law is developing to include common law. In the case of a partner or shareholder who is a separating spouse an equalization claim for half of the accrued net worth of that shareholder can occur, and the impact can be significant.
The conversation doesn't have to only deal with negative outcomes either. It's important to tell the history of the farm, looking toward the future, talk about how governance was worked out, how day-to-day decisions are made, what to be careful of when making decisions -- along with what happens in a careless moment. Itemizing predictable risks, as well as possible positive outcomes, and what to do in those cases, helps in many situations.
After much discussion, draw up a farm business agreement. This is about who controls what and where and in what circumstances. For example one child might want to have control of the dairy business and another child control of the cash cropping. That can be spelled out. Panelists cautioned the agreement must include right of first refusal, which they identified as crucial. You do not want part of the business sold to strangers and not offered to family first.
But what about the actual ongoing care of the business?
Unless the farm is just one married couple who do income splitting, it may be valuable to set everyone one up as employees, with employee benefits, including a group benefit plan, for protection. It can include health, dental, insurance and a pension.
Hugh O'Neill, Agriculture Business Advisor with O'Farrell Financial, discussed developing the successor, including training for workload management, management training, and the transition into new ownership structures. Consider whether the eldest generation wants to retire completely in the future or still participate on the farm. Do they want to live there or buy a bungalow in town? If they do that, is someone available to drive them out if needed? How will farm income support them and support the next generations on the farm?
As these ideas evolve, you can consult tax, legal, accounting and financial advisors. Make sure your plan is actually feasible, and won't cause more problems than it solves.