The top 5 big transition planning mistakes farm families make
When Chris Delaney talks about estate planning, he knows common mistakes are made by many Canadian farm families.
Transition planning is the interplay between thinking in our mind and thinking in our heart, where we do most of our decision-making.
He says estate planning, and therefore transition planning can bring up emotions like uncertainty and fear, combined with logistical concerns like how to start planning and finding the right experts for advice.
"And it's the interplay between thinking in our mind and thinking in our heart where we do most of our decision-making," Delaney says.
Delaney's top five transition planning mistakes
- Not considering the possibility of a black swan event
Delaney says black swan events - unpredictable occurrences beyond what’s normally expected and which could have severe consequences – are extreme rarities. In the context of transition planning, black swan events can be catastrophic.
Yet while divorce, when a child dies before a parent or a serious disease diagnosis are upsetting, it’s not rare. During transition planning, these scenarios should be top-of-mind and included.
But what if the cancer diagnosis comes before life insurance is purchased? What if a child dies after the distribution of wealth and before the older generation dies?
Delaney says Canadians are notorious for poor estate planning, including transition planning on the farm. A black swan event heightens the risk, so it’s important to work with a professional adviser and consider as many situations as possible.
- Thinking of estate planning as an event instead of a process
Delaney says, assessing shortcomings in the transition planning process by identifying blind spots with an adviser, creates a strategic advantage.
Delaney starts with a family meeting to get everyone accustomed to distributed decision-making and shared responsibility for stewardship and asset creation. After further meetings, shared family values are identified and the family mission statement is created.
“Then I build what I call the smart strategic process – which means that success in the achievement of the mission is made possible by identifying personal and family goals,” Delaney explains. “We bring meaning to that by setting clear objectives in our planning - then we create recipes for action.”
- Planning for assets, rather than people
Planning for the assets, rather than preparing for the heirs, can be a major error in intergenerational planning.
Most involved in transition planning are highly concerned about issues such as taxes, powers of attorney, life insurance and probate tax.
Opening the door to conversation throughout the lifetime of the farm operation helps with transition, as does working together for the long-term, multi-generational success of the farm.
Even details such as consideration of the trustee and a beneficiary are important, Delaney says.
“The trustee is stepping into your shoes,” he explains. “This person must have a relationship with your beneficiaries that’s at least as healthy as the relationship that you had with them, if not better.”
Nurture that relationship during planning, he says.
- Assuming family will understand your intentions after you die
Assuming survivors know intentions is the same as believing they can read your mind, Delaney says.
Ambiguous phrases such as “for reasons my survivors will understand” or “as you know” in a will or transition plan can be meaningless and frustrating for survivors. Be direct, he says.
- Failing to deal with rational and irrational emotions
Fears and other emotions at play during transition planning have rational outcomes, Delaney says, and can therefore be planned for.
Delaney says when considering the distance between the emotions involved with transition planning and the actual decision-making required, planning stops, procrastination sets in and the process freezes. Then, when it comes time for action, it’s hard to move on.
However, between the fear of planning and the act of decision-making is a safe space where addressing emotions and productive planning can happen. Delaney encourages farmers to cultivate a safe emotional place and continuously check-in with the family to address any fears. Utilize advisers and make some small decisions first.
Experts recognize common errors made during transition planning, such as considering it a single event rather than a lifelong process. Nurture conversation and shared decision-making among family members, utilize advisers and address fears to move ahead with creating a successful plan.