Posts

assets

Avoiding Assumptions About Assets

“If you’ve inherited an asset, you should act more like the custodian, not the consumer, of that asset.”
I was having coffee with Bill Allen, a Sun Life advisor and friend of mine that I met through CAFA
(Canadian Association of Farm Advisors; great organization, check them out www.cafanet.com) and as
we were discussing business, he used that statement above to illustrate his personal values as they
relate to estate planning. I asked Bill if I could write my next article around this statement, and he
consented.

The farm land that is expected to change hands over the next decade is projected to be somewhere
north of $50 billion (that’s >$50,000,000,000.) Much of the land will be sold (enter the farm land
ownership fray) but much of it will be handed down to the next generation. To the chagrin of farming
children, some of that land might get passed down to their non-farming siblings (enter the farm
succession fray.)

To those who inherit land, think about Bill’s statement above.

If You’re a Farmer…

There is blood in that land; the blood of your ancestors who risked it all to come west for a chance at a
new life. To think that it’s yours to do with as you please is…well, I’ll let you fill in the blank. Now land
that you acquired on your own with your own business savvy, hard work, and some good luck…you can
have at ‘er! It’s mighty short sighted to mortgage your “heritage” land for “personal wants.” What about
your legacy? What about your kids?

If You’re Not a Farmer…

The expectation of a financial windfall from the passing of your parents is simply unacceptable,
especially if you’ve been bequeathed the land that was passed down for generations. It is not yours to
sell to the highest bidder; it is an heirloom that must be cherished and made available for the next
generation again.

When my grandmother immigrated to Canada as a child, some of her older siblings stayed back in the
old country. Their descendants are distant cousins who we had kept in touch with many years ago. I
recall that the “flat” in which they lived was not owned, but was still passed down through generations.
Ownership of their own home, something which we take for granted in Canada, was not realistic for
them at that time in history. And yet what they had, despite unowned, was bequeathed.

When I began farming I promised my dad, who was a recent widower at the time, that I would never
allow the original land to be jeopardized for expansion or otherwise. Now that I’m no longer actively
farming, I can only hope that my siblings who are carrying on will stick to that.

There is a way to minimize the risk of inherited land being sold off: complete a succession plan.
Call it whatever you like: transition plan, continuity plan, longevity plan, whatever! No matter what you
call it, just get started. Getting started is the hardest part, and there is help available to get you started.
You will eventually secede from the farm, and the activity of planning for it will force you to talk to your
family about what they want.

Direct Questions

Does your entire family know what happens to the farm if you were to pass away tomorrow? Ask them.
If their answer doesn’t match yours, then you haven’t done a good job of this.

Do your non-farming children even want to own land? If they don’t, why burden them with it? If your
assumption is “Why wouldn’t they want land,” then talk to them…now.

Can you afford to hand down the land without needing the food bank in retirement?

From the Home Quarter

When I was a kid, the standing joke was “I can’t give my kids the farm; I’ll get charged with child abuse!”
Today, land is a hot and sensitive topic. Over a century of blood, sweat, and tears is awash in homestead
land and to trade it for a fat cheque seems an indescribable tragedy when something as simple as a
conversation with family could circumvent such heartbreak.

Succession isn’t easy. It forces us to consider a future that we may not be ready to face. But ready or
not, the future is near, so it’s best to be prepared.

Whoever said it, this rightly applies: “We do not inherit the earth from our ancestors; we borrow it from
our children.” Sounds like they were having coffee with Bill too.

If you’d like help planning your farm for business and personal success, then call me or send an email.

horizon2

3 Planning Fails

Have you managed to take a breather from all the trade-shows lately? Why is the trade show season
scheduled as such (Jan-Feb)? Because this is when we’re planning the new crop season that is merely 8-10 or so weeks away now. Exhibitors want to influence your thoughts for when you’re making planning
decisions.

We know what you are planning, but what aren’t you planning? Here are the 3 biggest issues that
farmers tend to not plan, based on nearly a decade of my experience in the banking and financial
corporate world:

1. Anticipating Cash and Operating Credit Requirements
What is worse than running out of cash when you need to make a purchase? Running out of
credit when you need to make a purchase! With the incredible highs and lows of a farm’s cash
position through a one year cycle, this is a CRITICAL planning process to undertake. And once
that’s done, work with your banker so he/she is not getting a 5-alarm phone call begging them
to extend your limit.

2. Creating a realistic capital expenditure plan
CapEx drives as many urgent financing requests as anything else. “Hello, Banker? I just bought a
sprayer at the auction. Can you make sure the cheque clears? I’ll be in tomorrow to apply for a
loan.” CapEx should be part of the overall business plan, not a knee-jerk reaction in response to
that hair-trigger you pull when the auctioneer is looking your way.

3. Being Unaware of Family Aspirations
Can you picture what a combination of fear and obligation look like? It’s what a banker sees in
the face of a client who just came in advising that his/her son/daughter wants to farm, so “we
need to add land and equipment.” Fear over the volume of debt that is needed (likely requiring
the parents to co-sign.) Obligation because “the kid needs to get a start somehow.”

I wasn’t a family negotiator then, and I’m not one now. If you need that kind of help, speak to a
family coaching or mediation expert (I know some good ones, so I can help.) But for crying out
loud, please start talking to your family early about their intentions. A farm is more akin to a
barge than a ski-boat: it’s not highly responsive, takes time (and room) to maneuver, and can’t
hit top speed without a whole lot of things going according to plan!

graph3

 

 

 

 

 

 

 

 

 

 

Direct Questions

Do you know how much operating credit you’ll need this year? Will you just rely on cash advances when
your line of credit is at limit?

When you acquire assets, is it “because it seemed like a good deal at the time” or because it fits your
overall business plan?

Do you assume you know what your family wants, or have you sat everyone down to talk? Don’t know
how to have that talk? Pick up the phone and get some help; your legacy (meaning your family and your
farm) are too important to let this slide.

From the Home Quarter

There are many factors that can affect your plans for the new crop year and if trade show exhibitors can
provide some of that influence, then they’ve succeeded in their plan. I’m suggesting that you have your
own plan in place, and whether you’re at the show or at your kitchen table, seek out the advice that
provides the most value to your business based on your plan.