The kids grow up on the farm. Two don’t want to farm but one does; he’s the kid that doesn’t have to be asked to help, the one who grows up with cows and calves, the one that loves operating equipment, and the one who’s has fun doing it. His mom knows it and his dad likes it. The other kids…well they have better things to do than dodge cow paddies and drive truck. Mom and Dad have plans for their son’s transition into the farm business, and estate equalization plan for the other two. They run their farm as a business first.
There’s another farm family where both boys want to farm while their sister wants to become a teacher. While the boys are a couple of years apart, they like farm life but have different ideas about how things need to be managed. Dad and Mom have an advisor who recommends a farm management section in their Farm Business Plan that addresses these issues when they arise between the boys. They also have a plan for helping their daughter with her education.
Then there’s the outfit where none of the kids want to farm leaving Mom and Dad looking forward to proceeds less tax from an auction sale, and land rents as a source among other sources for their retirement income.
In all three situations, there are farm financial risks but not without solutions to protect against them and the land’s value, to protect any money that might be socked away in a GIC, the future of the farm itself, and its’ protection against huge tax bills at the end of the day.
Every year, the Alberta government’s Ag farm finance advisors talk about business plans, farm income and the need for managing expenses; they conduct seminars and planning sessions to talk about finances and succession planning; and they inevitably offer their services that excludes anything having to do with financial instruments designed to protect families, their farm and capital.
In a recent article written by an Alberta Ag finance advisor, the author talked about the need to manage personal farm expenses, future financial needs and wants, and a need for planning personal income. But no mention of a need for money if (and after) a farmer has been killed, or passes away unexpectedly knowing that 45% of all farm accidents result in death.
Of the steps the author offers in terms of dealing with tight cash flow, including continued borrowing against the net value of assets owned by farmers (!), only one was left out – the value life insurance brings to protecting capital, providing survivor income, paying off debt, re-establishing tax-paid working capital, and paying tax. Also left out is the value that professional facilitators bring to the farm that ensures appropriate planning has been put in place.
Case in point (a true story): A southern Alberta rancher dies suddenly leaving his wife of 40 years and two surviving children. His son grew up wanting to ranch and remain in the country life – working cattle, harvesting forage and grain, going to rodeos, and getting married to the farm girl down the road with plans for another generation of ranching on that farm.
The farm family’s second child, a daughter who moved to the east and married a lawyer, came home for the funeral. As the story goes, she “looked over the fence and what did she see? A whole lot of value for me!”
Dad didn’t have a will or any life insurance. When he died, the bank froze all of the ranch’s bank accounts because it didn’t know where the next dollar was coming from to pay down debt the rancher owed. This freeze also included money in the farm’s chequing and savings account, and against any further cash advances through its’ various lines of credit. Further, money loaned through provincial agencies ceased. In all cases, demands were made for the farm to pay down debt. Then, Mom dies leaving the son alone to make ends meet.
Meanwhile, the sister, believing that she was entitled to half the ranch – not land, not inventory, but money - sues for compensation. In order to meet the legal demand for her “half”, her brother has to sell 20 sections where, after a while, the bank seizes the rest. Now broke, he has to leave that 100 year old ranch and the lifestyle he wanted to remain in.
What happened? What was this rancher thinking when it came to his family’s ranch and its’ future?
We can only speculate but a good guess is that he (1) didn’t seek out or want to pay for professional advice, or (2) his accountant didn’t do his/her job (they are obligated to ensure that their clients know all their options to protect against excessive tax and unexpected expenses), or (3) he didn’t have any transitions planning included in his ranches business plan, or (4) he ignored suggestions made by a qualified life insurance advisor to insure capital risks, or (5) that his government ag financial expert didn’t provide any information about life insurance as an estate and tax mitigation planning tool, or (6) that, if his family and farm needed money, they could just sell some land or other assets never mind the tax consequences, or (7) he was afraid of making a will not knowing what to do, or (8) he didn’t think he was going to die!
No matter now…he’s dead. He died without considering his family or his life’s work at the end of his time. And that’s the tragedy; one that could have been avoided if only he would have trusted someone to provide viable solutions for transitioning his farm to his son while making provisions for his non-farming daughter.
It’s all too common story and one that could have ended more favourably for the farm’s survivors and their futures. If only they would have taken the time to plan.
Dave Horner is a certified business facilitator (CEF), Certified Agricultural Farm Advisor (CAFA) and a licensed life insurance broker/advisor. He will be speaking on June 28 from 9:00 to 10:30 AM at the Rolly View Hall about the importance of Farm Transition Planning, and some of the tools and resources farm families can employ to successfully transfer of their farms to following generations. More information about Dave can be found at www.businessfirstfinancial.com. His office is in Millet, Alberta and can be reached at dave.advisory@gmail.com or 780-563-0078.