Before he started succession planning, Kevin Olson first got pretty good at avoiding it.
“The hardest part is getting started,” says the 50-year-old farmer from Plenty, Sask. “It’s easy to talk about it in generalities, but then you all kinda go back and start working on the machinery or some other task. It’s pretty easy to farm and just never have those discussions.
“That was the norm with previous generations and it’s probably the same for a good-sized share of farms today. It’s just, ‘Don’t worry son, you’ll get the farm one day.’”
Olson knew that just doesn’t cut it anymore and, as his three children grew, so did the guilt pangs of not having a succession plan. He finally started the process two years ago after attending some succession workshops.
“There’s nothing earth-shattering about what we’re doing,” says Olson. “We’re just putting some things in place.”
In fact, Olson says he and wife Patsy have created a succession “gridwork” rather than some sort of master plan. That’s just the nature of the process, he says.
“It’s very seldom – in anything – where you reach a moment when you say, ‘OK, this is how I’m going to write the story of the rest of my life,’” says Olson. “These things really do come in baby steps.”
While the particulars of Olson’s story are specific to him, his “baby steps” approach is one that might suit many farm families. And he can also offer a few tips from what he’s encountered in the past two years.
Olson farms with his brothers Daryl and Bill on 11,000 acres near Plenty, about 170 kilometres west of Saskatoon. Although they co-own equipment and operate as one farm, the three brothers each own and rent one-third of the land, have their own yard, market their own grain, and file separate income tax returns.
“We’ve farmed together for nearly 30 years and it’s been a good relationship,” says Olson. “But it’s strictly verbal. What happens if there’s a health issue or whatever? I’ve got two sons who want to farm and a daughter – she’s just in Grade 11 – who may or may not want to. So I wanted to have some plans in place. It’s still evolving, but at least we have something.”
This leads to Olson’s first tip: The biggest stereotype in succession planning is the uncommunicative dad, but it’s hard for kids to talk about succession, too.
Oldest son Braden, 21, plans to work full time for a local independent ag retailer and farm after hours after finishing his ag degree next spring. His brother Cameron, just out of high school, wants to farm too, but he’s just started his electrical apprenticeship, and daughter Brittany is still thinking about her future.
“We’ve talked about passing ownership to the kids in 10 years’ time where they’ll be in financial charge, and I’ll be semi-retired, spending summers at the lake and working for them during seeding and harvest,” says Olson.
“That’s fine but when you sit around the table and start talking about specifics, like insurance and buying shares in the corporation, it’s different. Even five years down the road is a long way off for a young person and so there’s a lot of ‘I don’t know, maybe’ and ‘Aww, c’mon, Dad.’”
That leads to tip No. 2: Accept that your kids may change their minds about farming.
“When I was a kid I couldn’t wait to get into the combine, couldn’t wait to start seeding in the spring,” Olson says. “It was later that I learned about the stress that comes with all this money going out all year and nothing coming in until the end.”
That’s why he’s encouraging his boys to have an off-farm income and acquire a bit of land so they can experience, on a small scale, both sides of farming. For his part, Olson will continue to operate on the assumption they both want to farm, but accept that that could change.
“You just can’t say for sure what’s going to happen. Maybe five years along, things will be really crappy in farming and it will be, ‘You know, Dad, I don’t know if this farming thing is going to work out.’”
But that’s not an excuse to delay succession planning, and Olson’s next tip is that if your plan might require insurance, get out there and buy it. He’s recently taken out an insurance policy that would provide cash for one child’s share of the inheritance and allow the other two to farm without having to take out a big mortgage.
“It’s not just that it’s expensive but the premiums go up exponentially, so we knew we had to get going on this,” he says. “You don’t want to wait until you’re 64 and have just had a medical scare.”
Similarly, he’s worked with his accountant and a financial advisor on some very specific measures, such as when he and Patsy would “freeze” their ownership in the farm corporation (which will allow the children operating the farm to capture the value of its future growth). These sorts of decisions, which involve all sorts of assumptions from tax rates to the future value of farm assets and income generated from farming, need to be constantly reviewed.
But having good numbers is critical, says Olson.
“Really, the start of it all is a financial plan because then we could talk to the kids,” he says. “Before then it was always generalities like ‘Do you guys want to farm?’ or ‘OK, you want to farm. So when do you think you might want to take over the operation?’ But those conversations only get you so far. You can’t set up a game plan until you can put numbers on things.”
To get good numbers, you need professional advice, but Olson notes there is assistance available under Growing Forward for succession planning. He opted to use financial planners (three in all) after his investment advisor offered their services at no cost as part of his portfolio package. The financial plan makes conservative assumptions on things such as future income and asset values and then looks at how much money he and Patsy will need to live, as well as the time frame for taking that money out of the corporation. (Most planners offer two or three scenarios based on different levels of retirement income.)
“One of the things I really wanted to know was when could I retire,” says Olson. “And until you put numbers on that, you can’t really know what you’re offering the kids. I mean, is it going to be a really prosperous company or a bunch of debt?”
Although the financial planning part didn’t cost him, Olson also – and this is another tip – paid his lawyer and accountant to be part of the process. It’s worth it to involve more than one professional, he says, so you get different perspectives on complex issues such as how much insurance is enough.
Two years into the process has also taught Olson that the succession to-do list is a lengthy one.
When should the kids stop being paid employees and take compensation in shares? How will marriages change the equation?
So his final tip? Succession planning takes a long time. Get used to it.
“It’s not like you make one big decision and it’s over,” he says. “There are always more things to deal with.”