Transitioning a farm to the next generation is one of the most meaningful and complex decisions a farm family will make. When one child is farming and another is not, questions of fairness naturally arise. How do you honour the off-farm child/children without putting the farm’s future at risk?
This planning is commonly called “farm equalization”, and there is no formula for fairness. The following questions are designed to help your family surface values, assumptions, and priorities before any planning begins.
This planning is commonly called “farm equalization”, and there is no formula for fairness. The following questions are designed to help your family surface values, assumptions, and priorities before any planning begins.
About the Farm & Its Value
- The farming child will take on the risks of ownership: drought, commodity prices, interest rates, and more. Does that risk change your sense of what is fair?
- Will the farming child be paying the estate for the land (through a promissory note, purchase price, or rent), or is it largely a gift? This affects how much wealth is actually being transferred.
- Do you plan to remain operating or working in the farm business? Will you be compensated? These influence the value of what the farming child receives.
- How is the farm business structured? Does it involve a farm corporation, personally owned land or a mix of the two?
- Farming is not a guaranteed return. In a lot of farm equalization planning, the off-farm child receives a relatively liquid, certain payout. Using life insurance, the payout can be tax-free. Whereas the farming child receives an illiquid asset with real operating risk. This asymmetry is a major consideration for most families.
About the Off-farm Child
- What has the off-farm child contributed to the family over the years (financially, personally, or in care for family members)? Should those contributions factor in?
- What are the off-farm child’s current financial circumstances? Does their need (or ability to manage their finhttps://unityipltd.com/?p=8592&et_fb=1&PageSpeed=off#ances) affect your thinking about fairness?
- Have there been prior gifts, financial supports, or inheritances that already benefit one child more than the other? Should those be factored in now?
- Are there children who haven’t made up their minds? Might they want to operate the farm in the future, and if so, how will things be shared between them and their other farming siblings?
About Your Intentions
- Is your goal to treat children equally (same dollar amount), equitably (based on contribution and need), or to simply ensure the farm survives intact? These can lead to very different outcomes.
- Consider whether the farming child’s land appreciates over time. A $10 million farm today could be worth $15 million or more in 10 years. Does your equalization goal change, or is it a fixed amount?
- Have you had an open conversation with both children about your intentions? Are there unspoken expectations that could create conflict later?
- Relationships are at stake. How you communicate your intentions often matters more in the long run than the dollar amounts.
- Having an external voice to help mediate or facilitate these conversations is normal and is not a sign of conflict.
Next Steps
This guide is intended to kick-start reflection on the big issues that may affect your farm succession planning. Every farm family’s situation is unique. Contact Unity to have an advisor provide a free consultation on your family’s farm succession journey.