There are often children in farm families who are either not interested in owning the family farm, who are not chosen as successors, or who are not interested in being involved in the farm. Owners need to figure out how to divide things fairly amongst the children when planning for farm succession.
Fair does not mean equal in most cases. Experts also agree that some other things should be taken into account when figuring out the real value of the assets flowing to the successor. The farm successor is not only acquiring assets but also most or all of the risk. They also have a prolonged pay-back period on the assets that essentially rely on their own hard work. Owners should also consider the value of each child’s sweat equity, calculated at true labour rates. A successor who has been working on the farm part-time since they were 12 years old certainly has built equity in the assets versus a non-successor child who worked off-farm through their teen years. Non-successor children, although not directly involved in the farm, may build sweat equity through being the primary caregiver for parents once they are older (refilling prescriptions, taking them to doctors appointments, getting groceries, etc.) and those things need to be considered as well.
Download and complete the sweaty equity calculator to determine the value of the work of those contributing to the farm, to help determine fair treatment of farming and non-farming children.
How do we provide value to non-successor children?
Non-successor children sometimes receive a one-time lump sum payment or a share of profits over time. This makes a lot of sense when asset value is carefully depreciated over time and the farm is creating surplus cash after all the expenses are covered. But sometimes farms are not creating enough cash flow for this to be feasible.
Farms across Canada are coming up with other unique and valuable ways to provide non-successor children a little something of their own:
A parcel of land that has some sentimental value;
A parcel of land that is rented back to the farm;
Other non-farm property or assets;
Beneficiaries of parents’ life insurance;
College or university tuition;
Irrevocable access to a cherished piece of family property or use of a valued right-of-way that does not pose a threat to farm operations.
Gut check
Look at your proposed treatment of your children. Now answer this question: Will my proposed treatment of the non-successor children impact my successor children?
Assignment
Have a conversation with your children about their succession expectations. Take notes of your conversation in your Workbook. If you do not have children, continue to the next step.
Action Point
Have a one-on-one conversation with your successor(s).
Let them know your plan and the reasons why it makes sense, in your mind, to provide value to non-farming children in a way that impacts your successors. And be open to new ideas. Maybe your successor(s) has an idea for providing their siblings the same value but in a different, less disruptive way.
