Succession Planning

Steps required to ensure a smooth transition to the next generation

A Succession Plan is an ongoing process to ensure management, skills, processes, knowledge, ownership and control of the farm operation are properly transitioned from the control of one generation to the next. The retiring generation is succeeded by an individual or closely related group (often family members) over an extended period of time. The key is to develop a comprehensive transition plan that addresses the diverse needs of the family on an ongoing basis.

Succession Plans can be as unique and varied as the farm families who create them, and deal with the transfer of labour, capital and distribution of wealth, as well as the grooming successors. The only mandatory objective is to avoid uncertainty so that, in the event of a challenge or crisis, there is a clear plan of action in place so the farm will continue to function.

Does your farm business have a Succession Plan in place? Could succession become an issue in the next 5 to 15 years? It’s never too early to start planning for the future.

If you are starting up a new farm, or have young children at the moment, succession will understandably not be one of your top priorities. However, you should still prepare for the likelihood that your growing operation will eventually need to be managed by future generations. In the case of older farms the need for appropriate Succession Planning demands immediate attention.

Legal Documents

Business and financial documents (e.g. mortgages, wills, and financial statements) are necessary to obtain a complete and comprehensive picture of the farm business. These should be updated every five years.

 

For more information, use the links listed below (for reference purposes only)

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Selling the Farm

Do you have a plan to deal with the tax issues relating to disposal of your farm assets? Have you discussed succession with tax advisors?

 

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Passing on the Farm

A succession plan should be in place to ensure the ongoing operation of the farm business as well as the economic prosperity of all generations involved in the business. The business and personal goals and expectations of the founder (retiring) and the successor (next) generations in both the short and long term are identified. Strategies of how the business will meet these goals are laid out in the assessment.

Contingency Plans

Are there plans to deal with unexpected issues such as death, divorce, disability, disagreement and disaster? Has your family budgeted for the costs associated with developing contingency plans, including legal documentation?

 

For more information, use the link below (for reference purposes only)

Communication Plans

Communication is critical during succession so develop a communication plan. Whether discussing profitability and business options or figuring out what is important to everyone, clear and honest communication is necessary. It is about two-way, quality communication and understanding each other’s issues, concerns and needs. [Ontario Min of Agriculture]

 

For more information, use the links listed below (for reference purposes only)

Links:

Transition to New Ownership

The timetable for transitioning farm ownership should be laid out according to an agreed upon schedule. The ability of the successor should be taken into consideration as they must have the required skills and knowledge before they assume full responsibility of the farm. Consider including a training and development plan for the successor. The retirement plan component deals with two issues - financial and lifestyle. It outlines the level of involvement of the retiring farmer and includes desired activities and living arrangements (who will live where) as well as how the transition will be financed. Financial details include where the retirement money will come from (e.g. sale of the business, interest on savings, etc.) an explanation of any retirement-income strategies (e.g. RRSP's, RRIF's, LIR's, annuities, CPP, OAS, etc.) and how the money will be spent. Living and lifestyle costs are serious considerations at this point. Click here to learn more.

Other parts of the Retirement Contingency Plan include:

• An explanation of financing required, various sources available and preferred financing options
• An inventory and valuation of assets and liabilities
• An explanation of the tax implications of the proposed transfer process along with a description of how these items will be addressed
• A discussion regarding the treatment of non-farming children
• An outline of insurance requirements related to life, disability, disaster and related insurance policies and coverage
• A description of legal agreements (e.g. employment contracts, partnership agreements, shareholder agreements, buy-sell agreements, etc.). Copies of these could be attached as appendices for reference purposes. It should be ensured that all legal agreements include dispute resolution mechanisms. Copies of all relevant legal wills and prenuptial agreements could also be attached for reference.

Financial Plan

The farm business plan component of a succession plan refers to how the farm business will meet the financial needs of both retirees and successors. This includes a financial analysis of the farm business—past, present and future—to determine if the business is profitable and viable. This is critical. If the business is not currently profitable and viable, then strategies need to be identified to address this shortcoming. The financial plan also defines the future direction of the farm business (e.g. maintaining the same scale, downsizing, expansion, diversification, value-added, etc.) and how this direction will affect the business, including financial projections.

Taking Stock Links

BC Ministry of Agriculture