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An Introduction to Transition Planning for Farmers

Last updated: Mar. 31, 2022 

Transition planning is one item on a farmer’s to do list that often seems a little more difficult to strike a line through compared to the rest. No matter what the farm type, size or scale, the future is always calling and farmers must make a decision about it at some point in time.

In this multi-part series, we will examine farm transition in-depth and give you the key insights to consider and questions to ask yourself as you ponder the next steps of your farm for generations to come. We will examine the benefits of Third Party Facilitators because, after all, sometimes talking with family can draw out emotions. A neutral and trusted third party helps focus discussions and stay constructive in what can sometimes prove to be a challenging conversation.

Next, we will give you what we do best—Tax, Finance, and Estate Planning. We will look at tax, estate, and financial-related considerations when we discuss a farm transition plan. Having a proper plan as you take over, or exit, is important, but knowing how the dollars are going to flow and how a retired farmer will live out their golden years while still helping the successors are important questions. We have you covered.

Farm transitions rarely happen overnight, which is why we also need to discuss Multi-year Planning. Many transitions are multi-year agreements and it’s normal to have a three-plus year timeline in place. For others, the process may be slow and methodical, lasting 10 years or longer.

Finally, our series will conclude with an examination of Diversified Operations. It is increasingly rare that a farmer will take over and not change even so much as the locks. The incoming generation must add more value to the farm, which takes many formats. More often than not, especially in an increasingly connected world, farmers want to try their hands at new and innovative practices. We will dive into what a farmer needs to be mindful of as they seek to diversify their new operation.

For all these critical areas, we will present to you case studies of farmers across the country who live and breathe these different areas and can personally attest to each one’s importance.

What is succession?

Simply put, it’s the process to identify and introduce a future leader, or leaders, to your farm business as the current owner, or owners, look to cycle out. For farmers, this has historically meant giving operational control over to the oldest son, if applicable. Failing that, it has often been offered to the next oldest sibling or the one that shows the greatest interest. Other times, there are no children to succeed a farm family and a longtime employee or someone in a management position steps into the gap and succeeds the farmer. It’s more a rarity, but sometimes farmers simply sell out completely of any land and assets and close that chapter of their life. These would be the common models applicable to most Canadian farmers.

Succession in Canada

According to the Canadian government, it simply views the notion of transition as a transfer of agricultural assets, which is certainly a large consideration. According to the government, in 2016 there were approximately $53.9 billion in Canadian farm assets. These assets are able to be fully or partially sold to the new person or ownership group. Transition also happens through an external third party with a written plan and/or a will.

It’s no secret: Canadian agriculture is getting older and the replacement value has not surpassed the incoming next generation. According to Statistics Canada’s 2016 Census of Agriculture, for farms with a single operator there were 65,815 people over the age of 55 and the national average age of a Canadian farmer is 56.2. Overall in the census, the average age of any farmer was exactly 55. Those farmers are now five years older and succession remains a high priority for many.

Not only that, but the uptake of succession also remains low. Less than nine per cent of all farms across Canada have a formal succession plan. However, some analysts informally estimate that the number is likely higher due to underreporting. Farmers categorized as sole proprietorships as well as partnerships had a succession plan 5.7 per cent of the time while family and non-family corporations were nearly three times higher at 16.3 per cent.

It is worth noting that just over 50 per cent of all Canadian farms in 2016 self-identified as a sole proprietorship while the remainder was divvied up between partnerships with no written agreement (17.4 per cent), partnerships with a written agreement (5.4 per cent), a family corporation (22.5 per cent) and a non-family corporation (2.7 per cent).

Also of note, incorporation rates increased by more than five per cent between the 2011 and 2016 census of agriculture, now sitting at 25.1 per cent.

The three highest industries for having a written succession plan were dairy (18.6 per cent), poultry & egg (12.9 per cent) and hog & pig (12.6 per cent). The supply managed subsets of Canadian agricultural production are said to be higher due to their greater capital requirements.

Getting started

Now that you are up to speed on the state of succession in Canada, next week we’ll take a look at your family farm and find out if you have satisfied all the different angles related to a successful on-farm transition. The important thing to remember is that this does not have to be taken care of overnight. While it may seem overwhelming at first, done properly and with trust and respect, this process can be a straightforward, and hopefully enjoyable experience for the incoming and outgoing generation of farmers.

Let’s get started: Click here for Part 1 – Why we use Third Party Facilitators

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Transition Planning content created with assistance from Bacque 40 Communications.