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Getting started
One of the most critical issues in the "life" of a farm business is the
preparation for the transfer of the farm to the next generation -- a process that is often
hard to think about, let alone act upon. Many farmers do not want to deal with the topic
because they do not know where to start, and they find it a difficult subject to broach
with their families.
If you start early, the idea will not be so overwhelming as the time approaches and the
topic will become a natural item of family discussion. The process of planning for your
retirement and the eventual takeover of your farm by your child or children should really
begin 10 to 20 years before you retire, so that by the time you are approaching
retirement, the plan is in place and you can begin to carry it out.
Planning your farm transfer is a process that occurs over many years, and involves many
details that you cannot take care of overnight.
The very first step in the planning process begins with finding out how both you and
your spouse feel about the future. Do you both have the same ideas about retirement? What
do you both want for your children? What do each of you see for the farm's future?
Following are some questions you can ask yourselves in order to get started:
About your retirement:
- When do you want to retire?
- Where do you want to retire?
- How much money do you need in order to achieve the above?
- What's the best way to obtain that money? (From farm sale, farm rents, savings,
pensions, etc.)
About your children:
- What do you think you "owe" them -- that is, what should you give them and
what should they buy?
- What ways can you help them get a start in life, without sacrificing too much yourself?
- What do you think they want from the future?
About your farm:
- Do you want the entire farm to stay in the family?
- Would you be willing to sell it to non-family members in order to divide up your estate
in equal portions?
Problems that may arise
Now that you have the thought process going, you will probably begin to see some
potential problems because many of your goals conflict with each other:
- You want to get the highest possible price for your farm in order to enjoy a reasonable
standard of living in your retirement years.
- On the other hand, you want to see your children get a good start --which would mean
selling to them at a low price or giving them the farm.
- You want to satisfy everyone, yet you want to keep the farm intact as opposed to
splitting it up and selling or gifting it to different children.
- You want to be able to provide for children who will not be farming.
- You want the family to be supportive, understanding and satisfied with your decisions.
These conflicts can be resolved, but it's going to take thought, lots of discussion,
and some possible compromise.
Thoughts on your retirement
Most couples spend a lot of time concentrating on their children's future and the
future of the farm, and do not think through their own retirement needs. Firstly, you must
decide where and when you want to retire. Then you must realistically plan how much income
you will need in order to do this. Only then can you determine whether gifting or selling
is appropriate.
If you are planning to sell, how much the children will be able to afford to pay is a
consideration, but it is not the only one. Your welfare is at stake here, too!
Many parents underestimate how much money their future will require. If you need help
determining your future needs, contact your Manitoba Agriculture home economist or farm
management specialist.
Thoughts on your children
Perhaps it's time to re-evaluate your thoughts on your children and what you do or
don't owe them. In fact, you really don't owe them anything. Your children will grow up
with the attitude you instill in them; if you lead them to expect the family farm as a
gift, they will do so. If you teach them that they must work or pay for the farm, this
will be the attitude they will have.
You should also look at which children are interested in the farm business, who works
well together, who works well with you, and who has the skills and ability to be
successful at farming. Other considerations are the contributions made by the children to
the farm and the contributions you have made to your children's future so far (such as
university tuition and interest-free loans). Also of concern is when specific family
members might be ready to take over, and whether that timing coincides with your
retirement plans. Above all, it's important to set a good example for your children, so
they develop a positive attitude about the farm -- they see a love of the land,
satisfaction in farming, and family contentment.
Thoughts about the transfer
Remember that a farm transfer involves more than writing out your will. There are many
steps you can take now to facilitate a successful and profitable transfer for all
involved.
For example, one of the biggest concerns in farm transfers is capital gains tax - the
tax on profit you make from selling the land, buildings and machinery. There are ways of
minimizing capital gains taxes, and your lawyer, accountant or Manitoba Agriculture,
Food and Rural Initiatives farm management specialist can tell you what they are. They can suggest which method
or combination of methods best suits your farm situation.
The hard part -- discussion
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