With nearly half of all farmers in Canada being 55 or older, many are turning their minds to retirement and what is going to happen with their farming operation. It’s a big decision: what to do with their life’s work?
There is a decrease in the number of farm children who are stepping into their parents’ footsteps. Farms are getting bigger, but farmers are getting fewer. One reason for this is that farming is an expensive business. And prices are only going to continue to go up. When my dad started farming in the 1960s, the average price for a 100 acre farm in Middlesex County was $12,000 -15,000. For the next generation today, they would pay more than that for one acre. The same goes for farm equipment. Advances in technology have led to some impressively specialized equipment, but with that comes incredible prices for farm machinery. These prices are forcing farm kids to pursue other careers, leading to what many have called “the demise of the family farm”.
If you are a parent planning to transition your farm to your children, you may want to consider leaving farm assets to them sooner rather than later. Instead of leaving farmland, equipment, livestock or shares of your farm corporation to your children on death via your will, an alternative would be to gift these assets during your lifetime. Assets could be gifted outright to the child(ren) or transferred jointly with you.
Gifting farm assets to your child(ren) will give them a leg up in what has become a very competitive and expensive business. You will also be giving your children a vested interest in a business you have devoted most of your life to, thereby giving them the opportunity to continue to build the legacy of your family farm. And you’ll be there to see it!
Besides helping your child get established, gifting farm assets during your lifetime also reduces estate or probate fees that would otherwise be payable when gifted on death.
Every family is different, however, so depending on your family dynamics, this may not be the best option. For example, if you have one child who wants to farm, gifting them assets now and leaving the rest of your estate to your non-farming child in the future via your will, may lead to fighting between children or hard feelings towards you. Also, if you aren’t convinced of your child’s commitment to the family farm, you may not want to gift these assets to them and run the risk that they will turn around and sell the assets. You will also want to make sure that your children do not have significant creditors or a separated spouse that could claim an interest in these assets.
You will need to have significant non-farm assets (i.e. RRSPs, etc.) to cover your own living expenses and future care costs. Ensure that you are able to pay any taxes relating to these gifts. One question to ask yourself would be: “would it hurt my pocketbook to start giving gifts of farm assets to my children?”
To come up with a succession plan that best suits your needs, it is important to discuss your objectives and concerns with your estate planning lawyer. Your lawyer will also work together with your financial advisor and accountant to guide you in what assets are tax efficient for you to transfer during your life, including the potential use of your capital gains exemption.
Gifting assets during your lifetime may also prevent fighting between your children when the terms of your will are administered. Maybe you have more than one child who would like to be involved in the family farm. If you leave the farm assets to them in your will, there’s no telling whether they think the division of assets is fair - and you’re not there to negotiate between them. Many families have become divided because of perceived inequities and resulting hard feelings over mom or dad’s will. So, gift the children the farm assets while you’re still alive and able to communicate your reasons for the division of assets with your children. It goes a long way for children to hear why mom or dad have gifted certain assets to each child. Have a family meeting to sort it out together and hopefully both your family and the farm will stay together.
