Managing a family legacy | Farmtario

Explaining estate decisions might be the key difference between maintaining a viable farm business and disintegration of a family legacy. 

In part three of this farm business planning series, Ray Riel, a farm transition and business management professional and operator of Advice Only Financial Group, reiterates two critical elements of successful succession planning: providing clear reasons for estate transition actions; and accounting for the more intangible, non-material aspects of the farm family’s legacy.

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Riel previously discussed the importance of having a will at all stages of a farming career. He expands by emphasizing the importance of explanations; that is, letting all parties know why they will, or will not, receive parts of the estate.

Why it matters: A farm family’s legacy includes both property and emotional value. Accounting for the latter can help protect the former, and by extension, the longevity of the farm business.

Riel says wills are cut and dry instructions on asset division for family and the courts. They do not contain the “why” factor, leaving greater room for beneficiaries and non-beneficiaries to misinterpret or project their own reasons onto the deceased person’s estate decisions.

A relative or child who expected a specific piece of property, for example, may feel more slighted if they do not understand why another family member took ownership instead.

Someone else might not realize the farm business would not be able to continue if assets were divided equally. Another might feel their share of the estate is disproportionate to their own time and labour investment.

Riel’s experience with farm families suggests a final explanatory statement can help maintain business and familial harmony.

“You can enhance your property legacy with an ‘ethical will’ or explanatory letter,” he says. “It lays out what you intended and why. For example, it’s an opportunity to recognize work which might have gone unnoticed… It will be the last time your family will hear from you.”

Other legal methods of preserving a farm’s material legacy include documents such as partnership and shareholder agreements.

However, prenuptial or inter-spousal agreements – where couples establish what will happen to property in the event of a divorce – should also be part of the package.

Riel considers marital agreements valuable in identifying how each spouse can be treated fairly in the event of a breakup. They can also offer strategies to ensure family property is preserved, as part of a farming operation, for future generations.

This can be especially important in provinces that do not protect inheritances and gifts from matrimonial division.

Riel believes it’s important for the outgoing generation to recognize that farm businesses often generate an inherent emotional legacy as well as a property legacy.

Specific places or family traditions might hold a special place in the minds of farming and non-farming family members. A deep attachment to the farm is common.

While taking the emotion out of the business process generally helps insulate against poor decision making, it’s a mistake to pretend emotion has no value to a family’s sense of place.

“The traditional view of business legacy involves property or inheritance left by the predecessor. For farm families, I’d argue it’s more than that. A farming legacy is a tapestry made of values, attitudes, property, heirlooms, stories and traditions that form part of family culture,” says Riel.

“Remember, non-farming kids grew up in the same place as the successors. They are connected despite not farming, and often want to maintain traditions. They want to know what they value will still be there and is still important despite a business transition. This is important to recognize.”

Like leaving an ethical will, Riel says speaking to family members about what they value most, and how that value can be preserved as the farm is passed to the next generation, can act as another hedge against future discord.

Such conversations are also an opportunity to share stories – historical knowledge that can add to the overall farm legacy, pay homage to previous generations and provide current generations with perspective and insight about challenging conditions.

“Every farm has had a history of hard times, good times, bad markets, land loss, break-ups and acquisitions. It’s easy to argue things were different, but what’s remained the same is the family’s ability to adapt and persevere,” Riel says.

He cites the economic hardships of the 1930s and sky-high interest rates of the 1980s as historical lessons that, if communicated and absorbed across generations, can help maintain a farm’s legacy through future hardship.

“Understanding long cycles is part of maintaining a farm legacy… How do we persevere? How do we ensure we’re not overextended, and that we can take advantage of opportunities? Land is an example, since someone is still buying land when things are bad. How are they able to do so? Ask yourself that question.”