This is the second article in a three-part series addressing clients in the agricultural industry. The first article was from a local farmer, who opened up about what it’s like to run a thriving family cash-crop operation.

You might be surprised to learn how extensive the farming industry has become. It’s a big business, with global commodity trades, computerized machinery purchases, large-scale land, livestock and supply investments. And with rising business costs, environmental challenges and bureaucratic red tape, many of today’s farmers need to be thinking on a strategic level.

What’s important to farmers

If you keep up with business issues and potential client concerns, it will be easier to communicate with farmers about what’s important to them. The more you can appreciate and understand their needs, the better advice you’ll give.

Perhaps more than any other business, legacy is of paramount importance to farmers. Working the farm isn’t just a business venture. It’s a lifestyle that farmers want to pass along to their sons, daughters or grandchildren.

Financial planning models geared for the farm

Farmers tend to focus on land ownership and don’t generally diversify as much as other business owners do. Knowing this, you can suggest insurance and investment solutions that offset that imbalance and help protect assets. It’s a strategy that’s worked well for Sun Life Financial sales director and insurance consultant Ed Jacob. He spent many years developing financial communication materials for farmers and conducting farm seminars and education sessions both for clients and advisors.

Jacob says because they plow everything back into the farm, most farmers will be more asset rich with less cash. The problem is that farmers who don’t have a defined succession plan need to keep taking income from the farm after they’ve passed it along to their children. But then the children need to go to the bank for loans to keep the farm going or fund a buy-out. Encourage your farming clients to diversify their investments so they can leave the farms unencumbered for children. If parents don’t make separate investments or have RRSPs, it might not be so bad for children taking over the farm. But siblings who don’t want to take over the family business are left out of the equation.

Equitable doesn’t mean equal

When you take a closer look at the parts that make up the whole, the financial planning picture you paint for farmers becomes more clear. Real estate value is more than just its appraised amount. Consider the sweat equity that’s already invested in the farm along with the bricks, mortar, livestock and machinery. They’re assets that don’t equate to the same cash value and could be worth more to the farmer. The classic solution is this: the farming son gets the deed to the land and the other siblings get an appropriate cash value which may or may not be equal to the value of the farm.

As an alternative, the farming child(ren) could buy joint-second-to-die life insurance policies on the parents. At the same time, the parents could gift the farm to their farming son or sell it to him at a reduced price rather than having him borrow money from the bank. An agreement with the farming son to pay the premium out of farming income would fund the policies and when the second parent passed away, the policies would provide a cash amount to each non-farming child. A thoughtful succession and estate plan for the parents also shows the value of a financial plan to the surviving children.

The succession planning model shown below outlines the insurance and savings options that would let retiring parents and non-farming children leave the business in a way that’s equitable and economically viable.

Without this or a similar plan in place, retiring parents would have to remain connected to the second generation farm. Farming children would have to purchase or rent the farm from their parents. Parents could decide to allocate a certain percentage of the sale to fund the other siblings’ share of the estate or bypass the non-farming children completely. If non-farming children aren’t addressed in the succession plan, the assumption is that their share would likely be considered in an estate plan. Regardless, poor planning may result in a fractured and divisive process that won’t fully fund or protect parents’ retirement income.

Farm succession planning model

Farm succession planning model

Setting goals

When Ed Jacob meets with a farming client, there are two things he suggests. The first is to develop a plan, and the second is to communicate it. It sounds simple, but communication is the key to the entire process. Without it, Jacob says, the risk is mom or dad could pass away and the family could splinter off into sharp, divisive groups.

The goal is to have a plan that provides for all children — so everyone can benefit and live off the farm if they want to. Life insurance is a good solution that could fund the bequest to non-farming children. Parents could then gift the farm or sell it at the most reasonable price to the farming child. Unlike most other businesses, farmers can roll their qualified farming property over to children at cost. Helping them do so without putting their retirement income at risk, can help satisfy farmers’ estate and legacy concerns.

It starts with a conversation

Encourage farming clients to talk openly with their family about their goals. Not enough children know what the ultimate plan is. As an advisor, one way you can show the value of your advice is by being a facilitator of a financial plan that’s clearly defined and communicated.

The emotional side

The right insurance product solutions will be extremely beneficial to farmers, but there’s also an emotional factor in financial planning models that can’t be ignored. Advisors who serve farming clients need to be aware of the psychological elements that exist in the farming landscape. The affection for farming and the pride in production are strong emotional sentiments. And it’s also typical for farming clients to prefer privacy and caution when family or money issues are communicated. It’s not uncommon for children to be working on the farm for over 20 years without knowing anything about its future. Being aware of these underlying emotional currents can help you frame your approach in a useful and sensitive way.

Farmers are survivors in a tough economic market. They’re educated, socially connected, and committed to finding new and efficient ways to maximize production and create a lasting legacy. More farmers are embracing the value of a solid business and succession plan — one that you can help deliver.

Across its Insurance and Wealth business, Sun Life Financial’s Advanced Planning services deliver professional expertise and insights through a team of chartered accountants and lawyers. If you want to learn more, please talk with a Sun Life Sales Director.

For information you can share with your clients about the unique tax treatments for farms, check out ‘Handing over the keys: Planning a smooth real-estate transition’ on

Stay tuned next month! We’ll wrap up our series by talking to a farmer who puts a unique spin on nature and technology and an advisor whose expertise in the farming industry is clearing the way for more efficient estate and legacy planning conversations.

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