Her parents, Jean and Joanne Dargis, were still young when they died, and they hadn’t started succession planning or updated their wills in more than 15 years – before a few of their daughters had even been born.
While they were still grieving, Dargis and her sisters were forced to deal with the estate and probate process, and sit through tough discussions with the executor, lawyer and accountant.
“We were trying to make decisions based on what we thought mom and dad may have wanted,” says Dargis, who now owns a small farming operation and wilderness tourism business in the Yukon. “Their will was from the 1980s, so their wishes might have been different. We’ll never know.”
A few years ago, motivated by her family’s experience, Dargis was awarded a Nuffield Scholarship to travel the world investigating succession planning models and the role of the next generation on the family farm. Since that time, she’s travelled widely in Canada and spoken internationally about her findings.
She believes succession planning is important for two reasons: family harmony and business continuity.
“The ties with your family are the ones that will be affected by not having a succession plan,” she says. “The second reason is the farm – whether it’s a homestead or a farm passed down through generations, if it’s important for the parents to keep the farm in the family, they need to know it will be bought out by the highest bidder if there is no succession plan in place.”
The family farm was ultimately taken over by Dargis’ younger sister, Lynn, which was only possible because Jean and Joanne had involved their children in every aspect of farm life before they died. The siblings even had relationships with industry professionals and the bank, and a strong working relationship with each other.
“Because we had grown those bonds, taking over the family farm was the easy part,” Dargis says. “The hard part was dealing with the [future of the] farm through an unplanned estate. It took a lot of determination to make it work.”
Heather Watson, executive director of Farm Management Canada, says succession planning ensures business continuity by linking the wishes of one generation with the next generations that will be involved in the family business.
“Many farms concentrate on the here and now without taking the time to put a process in place that will address how everything happening today will survive and thrive for future generations,” she says.
Succession planning can also be called “transition planning,” she adds, and it addresses the transition of ownership, capital, management and labour – all crucial elements for business continuity.
“Not having a transition plan means no plan for the future of the farm. Since risk is defined as uncertainty, no plan for the future presents a number of serious risks and consequences for the farm and the people supported by the farm,” she emphasizes.
Eric Olson agrees. A farm management consultant with MNP LLP, Olson has seen more than his fair share of businesses both with and without succession plans. Farming operations are closely tied to family identity, Olson explains – many times, farmers don’t want to leave the farm, which makes discussions about succession especially difficult.
But succession plans allow farm owners to determine the terms under which they want the next generation to take over the farm, which is ultimately empowering.
“When they don’t do that, you have farm failures because of uncertainty over how the process will go,” he says. “The first thing that happens is that if you’re not planning succession, the assets get transferred on your death. The second problem is that there can be tax issues.”
Succession plans, Olson says, deal with “living” businesses, which means they should ideally be slowly enacted over the course of a decade and revisited often to deal with changing land values, assets and equity. Property can be transferred slowly to minimize the tax burden.
“If you don’t have a good succession plan and you die, and everything goes into an estate, it can be a business killer,” he says. “With these farm value numbers now, you can’t finance your way out of something like this. If your farmland is worth $4,000 per acre now, it doesn’t have the carrying capacity in terms of debt for successors to re-buy the farm.”
This can fatally compromise the ability of future generations – who oftentimes are already deeply invested in farm operations – to take over.
But succession planning is also important to help families deal with other eventualities, like unexpected illness, disability or incapacitation of farm owners. When this occurs, long, careful discussions about the future of the farm become impossible, Olson says; quick decisions are the new name of the game.
“But those decisions have to be made, so it’s easier to have a framework in place before this happens,” he says.
An ad Farm Management Canada has been using to promote succession planning.
Photo courtesy of Heather Watson.
Olson believes many farming families delay succession planning in order to avoid family strife. But he believes having tough conversations earlier on actually gives families a fair shot at resolving conflicts and building confidence.
Especially in the case of non-farming family members, who don’t want to continue the farm but expect to receive a share in its value, these conversations can be especially important. “If someone doesn’t like the deal they’re given they can [still choose to] do something else,” he says. “It takes care of this earlier. It gives everyone security. People don’t think they’re sitting in limbo, but if they don’t have a succession plan on their farm, that’s a tough spot to live in.”
On her Nuffield tour, Dargis encountered both positive and negative approaches to succession planning. One of the most positive, she says, was a family in Australia who made an effort to have weekly meetings to discuss farm business – not at the kitchen table but in an improvised conference room in the shop, to keep family fun and work separate.
“Every year they’d take a retreat where they’d learn something new. For example, they’d have a lawyer come and talk to them and they’d review their mission and goals for the farm,” she says. “They knew what their needs were and were working toward that. It was so positive. It was about great communication and they knew how to deal with their challenges and arguments.”
Not that these discussions about succession planning or life on the farm always have to be tough. Dargis believes good succession planning frees families to be confident and happier with their decisions, as well as with each other.
“As farmers we always focus on the work – the farm work,” Dargis says. Her parents taught her a different approach. Even if it was harvest season, Jean and Joanne would take the family on spontaneous trips, not forgetting to “live a full life.”
“It’s all about attitude, and we’re only given one chance to make the most of it.”