Finding fairness with land value when transitioning the farm
When transition planning, determining what’s fair to off-farm kids requires creative thinking and open discussion. And it’s becoming more complicated as rising land prices make inheritance issues even bigger.
Annessa Good, an FCC Agriculture Transition Specialist, says it’s never too early for a family to discuss how the farm will pass from one generation to the next. Talking early — before a transition plan begins — is a solid farm risk mitigation strategy. She points out that going about the plan is tough enough with so much family history at stake – even worse if a parent dies and emotions escalate even further.
Getting it done promptly is vital. But how?
3 big questions to ask yourself
In this brief video, Good suggests transition discussions start with three big questions. Answering them is also valuable for when you’re ready to talk to your transition advisor.
- Will land go to a non-farming child?
If yes, there are concepts to work with that. This practice is becoming a trend as Canadian land values increase.
- Is the operating company being left to a farming child?
Whether the farm company is left with the farming child or off-farm child could impact the family dynamic. In some cases, the farming child may end up reporting farm decisions to an off-farm sibling. To create balance in inheritance, there are several risks to be considered with a transition adviser.
- Where is the land wealth?
If land wealth is in the farm company, it may be complicated for non-farming children to access it. This is another important question to raise with transition experts early in the process.
Fair and equal transition
Determining an equitable split between on-and off-farm siblings adds to the complication.
“As a parent, how can I sleep at night knowing I’m leaving a certain amount of money to the farming child and certain investments to my off-farm children?” she says.
A farm’s value is often in its land, and on-farm children who get that land as part of the succession plan immediately have a huge asset.
“As a parent, how can I sleep at night knowing I’m leaving a certain amount of money to the farming child and certain investments to my off-farm children?”
But that asset only turns to cash if they sell the farm, and that’s rarely in the cards.
“It’s like Monopoly money – it’s not real,” Good says. “If the on-farm sibling doesn’t sell, they’ll never see that value.”
However, these asset-rich, cash-poor, on-farm siblings are often expected to compensate their off-farm counterparts somehow. Agreeing to buy them out can add a lot of pressure. Even a modest repayment schedule can be difficult for the new operator.
Perhaps off-farm siblings can become shareholders. That can be difficult if the on-farm siblings think they must answer to off-farm siblings for management and production decisions.
Overall, the issue is far from simple, Good says.
When transferring land, creating fairness among on-and off-farm children can be tough. But approaching the subject early and honestly and asking the right questions can keep the peace and make the transition process smoother.
Article by: Owen Roberts