submitted by O’Farrell Financial Services Inc.
With the number of changes to tax laws announced over the summer and the potential impact on the agrifood industry, we are receiving an influx of calls with questions surrounding farm succession and how to keep their farm in the family. With this in mind, we have prepared this article which outlines the farm succession process at a high level. It is our goal to take the mystery out of it all.
Like building a farm, building a succession plan isn’t an event – it’s a process. There are many family, legal and financial concerns to consider when creating and implementing a succession plan. Seeking advice from experts is key to navigating potential financial pitfalls when passing the farm from one generation to the next. At O’Farrell Financial, we go through five steps to develop a comprehensive succession plan that will help meet the needs of you and your family/business partners.
Step 1: Develop the Successor – From the beginning of your farming experience it’s important to consider who your successor will be. Will it be one person, or more? A child? Multiple children? A spouse? A non-family member? Once you’ve determined the successor(s), you must start working with them to train them on workload management and begin the transition to the new ownership structure. Starting the process early on will smooth the transition that could still be years down the road.
Step 2: Plan for Retirement – Next, you need to ask yourself: “What does the next phase of my life look like?” You’ll need to determine your level of participation on the farm. Will you continue on in some capacity or will you retire completely? How much money will you need to live the life you want in retirement? What sort of hobbies will you be supporting? Where will you be living?
Step 3: Evaluate the Capacity of Your Farm – Having defined what you want your retirement to look like, you now need to determine if the farm’s revenue will support the new generation and your next phase in life. Are there expansion plans or new technology that should be considered to sustain the farm?
Step 4: Generating Options – This is where your financial security advisor will work alongside your lawyer and accountant to generate and present different options to suit your specific needs and financial goals. This phase will address estate equalization, tax reduction strategies and ownership structures. Who will inherit the farm? Are there children living away from the farm who need to be considered in your estate? Will a partnership benefit the business or should you consider incorporation? These are just a few of the considerations.
Step 5: The Final Product – At the end of this five step process, with a trusted financial team supporting you, the goal is to develop and begin implementing a clear farm succession roadmap. It’s important to have a financial security advisor, lawyer and accountant that are working together with your best interest at heart.
Starting the conversation today can benefit the farm’s financial succession for both you and your successor. It is important to talk with a professional so you can be aware of the many benefits and potential pitfalls of financial, tax and estate planning for the succession of your farm. At O’Farrell Financial, we’re concerned with more than just the ‘what’ and ‘how’ – we’re also focused on the ‘who’ and ‘why’. This is an important characteristic to search for in choosing your team.