Continuity Planning Will Save a Generation

It’s a familiar story. The farmer has worked hard all his or her

life. Maybe even inherited the farm from parents or

grandparents. Now with advancing age there is retirement to

consider. One or two of the kids stayed and worked the farm.

One or two left for a different life. How does it all get divided

up? Who has time to even think about all that or pay for the

lawyers and accountants to handle it? There are crops to

plant and livestock to manage. This continuity planning thing

will work itself out, right?

No. It does not. Without actively participating in continuity

planning, all that is left behind is a family and farm in ruin.

Derryn Shrosbree, founder of 33seven, knows this scenario

all too well. He opened his firm to help families with a proven,

tax-advantaged, affordable and best of all – easily obtainable

– solution that keeps the farm, the family and everyone’s

sanity intact.

“The biggest hurdle is psychological,” says Shrosbree of why

so many farmers opt out of sucession planning. “It comes

with a feeling of ‘I am now obsolete on the farm. The farm

that I built, I spent my life’s work on and now that I’m

transitioning out, I feel that I am no longer needed on the

farm,’ which is exactly the opposite of what actually is

happening. You are definitely needed.”

Shrosbree is both a farmer and a family man, with 103 acres

of market garden and three children – one on the farm and

two off. Therefore, he stands by the 33seven tag line with

experience and confidence: ASK A FARMER WHO KNOWS™.

Shrosbree continues, “The second reason [hurdle] is that

farmers look at next year’s canola crop, what has to go in,

getting the soil ready, etc. Farmers prioritize the urgent at

the expense of the important. Continuity is important, but

next year’s crop is urgent. Yes, next year’s crop is important,

but what’s more important is the stewardship of your farm

and the continuity of your farm and your legacy. Farmers kick

the can down the road. I’ll do it tomorrow; and before they

know it, they are 75. Now the important has become critical.

Without continuity planning, the farm will be encumbered

with debt, there will be a loss of acreage and there will be a

family breakdown.”

Continuity planning starts only when the farmer realizes that

doing nothing will result in a disaster.

“You’re not diminishing the farm, you’re growing it,”

Shrosbree says. “Knowledge plus experience equals

wisdom. The farmer is wise. He has knowledge and

experience, and that wisdom needs to be transferred to the

next generation.”

OK … but how? Shrosbree is happy to share the answer.

“You dear farmer, will be doing one transition in your life. I do

one transition per month, for 10 months of the year. For 15

years, I have done 10 per year – that is 150 transitions. I have

done it so many times that there is no scenario that I haven’t

seen and that I cannot handle. We only onboard 10 families

per year to ensure we provide them with the best possible,

most experienced, error-free results. We do not make

mistakes about your future.”

He continues, “The answer is the Farm Liquidity Solution

(FLS). Most farmers are asset rich and cash poor; they keep

investing in more land, equipment, etc.”

What is the FLS? It is solutions that include accounting, legal

and structuring options:

• The Tax-Free Zone

• Business/Farm Evaluations

• Estate Freezes

• Family Trusts

• Offshore Financial Instruments

The following explores one of these options to provide a

quick and easy aspect of continuity planning and estate

equalization.

The Tax-Free Zone:

Step 1: The farm purchases permanent tax-exempt life

insurance on the key person (the farmer). The farm is the

owner and beneficiary of the policy.

Step 2: Premiums are paid using the farm’s cash flow or

retained earnings.

Step 3: The policy is the collateral for the loan.

Step 4: The loan’s proceeds are reinvested into the farm to

generate income. Therefore, farmers have no opportunity

cost of dollars. They do not have to choose between growing

the farm or equalizing the estate, a.k.a. not ruining the family

when they die.

Step 5: Upon the passing of the farmer, the death benefit

pays off the loan. The remainder of the death benefit is paid

out to the family.

Shrosbree discusses how the Tax-Free Zone solution works

by offering a real-time example.

“I go to a farmer and I say, ‘Hey, how are you doing?’ He says,

‘I’ve got an issue. I’ve got a 10,000-acre farm and four children,

two on farm, two off farm. How do I divide this?’ A farm is not

a pie. You cannot cut up a farm in four ways and give each

child two-and-a-half thousand acres. The farm will fail.

“Let’s just say that farm’s worth in easy math is $20 million.

So, there will be $5 million per kid … but the two on-farm

children have worked for eight years on the farm. They drive

the same truck, they share a pair of dungarees and they share

a hat. They have never taken a dime out of the farm. The two

off-farm children live in Toronto and do whatever they want.

“Now it is time to reconcile the farm and the children. ‘I love

my children equally. I want to give them an equal amount of

money when I die.’ This is noble, but it’s not fair. In this day

and age where a farm that was worth $400 an acre is now

$4,000 an acre or more, there is simply no way you can

divide it up dollar-for-dollar equally.

“It will wreck the family, which means the two brothers who

have worked tirelessly for a decade on the farm and have

taken nothing will never have supper again with the two

brothers who left the farm and expect a cash payout for

doing nothing on the farm.”

What options does a farmer have?

Option 1: The farmer can sell acreage, which makes the farm

economically unviable.

Option 2: The farmer can take on additional debt to pay off

the off-farm children’s inheritance.

Option 3: The farmer can choose to do nothing.

Shrosbree notes that at this point, most farmers lose hope

and simply choose to do nothing.

“When you do nothing, be very, very clear in your mind,

you’ve made a decision. The do-nothing option results in

those four children not having Christmas dinner together

ever again. Now that farms are so valuable and are worth so

much money, with big money comes big problems. Whereas

before the children in Toronto couldn’t care less, when the

farm was worth a million bucks. Now the farm is worth $20

million, and attitudes have changed towards farming. All of a

sudden, the non-farm children living in Toronto become very

interested in farming … or more specifically, very interested

in the money from farming.”

He reiterates again that there is a solution; one so easy and

effortless that most doubt its effectiveness. For those who

take the few moments to learn about it, however, the

daunting issue of continuity is solved – no matter how many

children are involved and whether or not they farm.

“With the FLS, the farmer essentially buys a ‘tax-free zone,’”

says Shrosbree. “It’s an equalization tool that gives the

off-farm children money. When the key holder dies, there’s

an insurance proceed that pays off the off-farm children.

They get cash and the on-farm children get the acreage. It’s

not going to be dollar-for-dollar equal, but it will take it to a

level where it is fair and where the farm can afford it.”

Why isn’t everyone doing this?

“Math is easy. Emotions are hard. Humans are not rational,”

he sighs. “I spend 80 per cent of my time listening to people

tell me they don’t have time or don’t want to have this

conversation. The remaining 20 per cent is implementing the

solution for the people who overcome their resistance and

listen. I feel like I’m handing out a gold bar, and most people

simply say no and walk away. Just overcome that fear.

Overcome the notion that ‘meh, the kids will be fine.’ No,

they won’t. They absolutely will not.”

He concludes bluntly, “I think often of my favourite quote

from Yellowstone, ‘Horses and cattle may be how the West

was won, but death and taxes are how we are going to lose

it.’ There is a solution for both. I have the solution for farm

continuity. I have the solution to reduce or eliminate taxes.

So, make a choice. Doing nothing is a choice.”

The reason why Shrosbree cares so much and works so hard

for farmers is intensely personal.

“Why do I care? Because my story is so very similar to many

other farm families. We were a family of five – three brothers

and two sisters – when my father passed away. We were left

with a huge tax bill. One of my brothers and one of my sisters

took the cash inheritance and refused to pay my father’s tax

liability. So, the three of us ended up paying the entire tax bill

whilst the other two took the money and left us hanging.

This action split the family into two parts. The three siblings

who paid our father’s tax bill still have supper together and

the two who did not pay, well I presume they have supper

together, but they certainly don’t have supper with us.

“This entire situation was 100 per cent avoidable if my

father had done continuity planning. By doing nothing, you

make a choice. By procrastinating, you make a choice.

Which of your choices will your family inherit? Will you

leave behind pain and a tax liability? The ball is in your

court. Do something or embrace and accept the

consequences for your family.”

Shrosbree’s father made a choice and that choice was to do

nothing. It had an impact on the farm, the finances and most

devastatingly – the family. It had an impact on Shrosbree in

that he never wanted anyone else to have to go through that

nightmare. He spent countless hours and energy on finding a

legal, viable, workable solution that is scalable and obtainable

for all business owners, and especially for farmers.

If you are interested in this solution, ASK A FARMER WHO

KNOWS™.

To view the full article. Click on this link, Farming for Tomorrow.