We asked Rick Van Beselaere, a partner with the Regina-based law firm Miller Thomson LLP. With more than 30 years of experience in banking and finance, Rick shares his insights on farm succession planning.
Does fair always mean equal?
Rick: Many people assume that being fair to their children means treating them equally. This often comes up in both succession and estate planning. Families face this question whether the farm is passed down during the parents’ lifetime or after they have passed away.
In my view, a transfer of one million dollars in farm assets is not the same as one million dollars in cash. A child who receives farm assets also takes on the business risk of farming. In addition, farmland is not liquid. Cash can generate a return right away, while farmland requires years of work to produce income.
Families also need to consider whether the farming child or children have contributed more to the business than their siblings. Every family must decide for themselves what feels fair.
Can life insurance equalize what each child receives?
Rick: Life insurance can be a useful planning tool. However, with the rising value of farms, it may not be enough on its own. Buying a policy large enough to balance farm asset values may not even be possible—or it may simply cost too much.
Premiums also increase with age. By the time a farmer is in their 60s, the cost of life insurance can be very high.
What about giving farmland to non-farming children?
Rick: This is a common part of many succession plans.
In these cases, families should ask whether farming children will need access to that land. One option is to give them the right to lease farmland passed to non-farming siblings. Another is to use mortgages or payment agreements that benefit non-farming children while still supporting the farm’s future.
Families can also be creative. For example, you might include a “cooling-off” period where land given to non-farming children cannot be sold right away. This gives farming children time to stabilize their business and possibly buy the land back.
Options such as rights of first refusal or purchase agreements can also provide flexibility.
What are the common challenges in planning?
Rick: The biggest challenge is creating a formal plan and discussing it openly with the whole family.
Writing down the plan helps prevent misunderstandings and reduces the risk of disputes later. Families also need to analyze the business in detail:
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What does the farm business include?
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What do the parents need financially?
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What can the farm support in terms of debt and obligations?
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What will the farm look like in the hands of the next generation?
Tools such as a transition conversation starter can make these discussions easier.
No family should plan without first reviewing these questions. Once answered, the business owners can move forward with a plan that meets their goals.
Are there special considerations for incorporated farms?
Rick: Yes. If you choose to incorporate, it helps to set up different classes of shares. Doing so allows you to pay different dividends to different shareholders. This is not possible if everyone owns the same class of shares.
The best time to create share classes is when the corporation is first established. While changes can be made later, the process becomes more complex.
Regardless of incorporation, a business analysis is critical. A clear, realistic plan is the best way to ensure the farm remains viable for the next generation. It also helps guide how assets are allocated between farming and non-farming children.
Originally From an AgriSuccess article; revised and adapted for this publication.
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