There are often children in farm families who are either not interested in owning the family farm or who are simply not chosen as successors. Owners need to figure out how to divide things fairly.
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 child. A child who is a 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.
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 free surplus cash flow after all the expenses are covered. But sometimes farms aren’t creating enough cash flow for this to be feasible.
So 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;
The family's seaside cottage;
Other non-farm property or assets;
Make them beneficiaries on your 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.
I’m ready to have a conversation with my children about their succession expectations. If you do not have children mark complete and continue on to the next step.