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  • Darrell Wade

Moving the Hunter Family from succession to a financial discussion



Many of you have been following our journey with the Hunter Family as they progress through family farm succession. We’ve been thrilled with how you are responding to the series – relating to one or more of the family members and gaining a deeper understanding of some of the challenges and roadblocks they are facing.


To recap, the Hunters are a fourth-generation family farm with a mixed crop and dairy farm in Southwestern Ontario. The matriarch, Mary, is an 80-year-old widower who continues to live on her family farm. Her son, Bruce, also has home there, works on the farm and has partial ownership. Two of Bruce’s three children, daughter Maggie who is 28 years old and son Mark who is 26 years old, both would like a pathway to farm ownership. Maggie currently works at another dairy operation where she has successfully introduced robotic technology while Mark, who is expecting his first child in a few months, has worked his entire life on the farm.


In the last issue, we explored how the family aligned their vision – they all want the farm to stay in the family and they want to maintain the strong relationships they have with one another. They are also agreeable to ensuring the plan is multi-generational and includes considerations for all current and future Hunter grandchildren.

After our last meeting, our team began to put the Hunter Family farm into financial perspective.


Mary Hunter, 80 years old

Mary has maintained a modest lifestyle her entire life and diligently balances her personal chequebooks at the end of each month, making it easier for us to assess what is required for her lifestyle moving forward. “I don’t want to move out of this house, and I don’t want to stop treating myself every once in a while.” I smile because Mary’s way of treating herself has been purchasing what she would call “the good stuff” in the yarn store for her sweater making. She is also aware that the income she does receive from the farm effects her OAS payments and she is saving money and has been for several years. She, like many of us, gets used to a lifestyle and very little spending habits change. Financially, she is willing to move forward now that we provided clarity on the difference of taking income from the business she didn’t need (paying tax on it as well as tax on the income on her investments) versus drawing from her savings and qualifying for her OAS again.


Bruce Hunter, 55 years old

Bruce has a realistic approach in this phase. He has a good understanding of his personal net worth and has a basic understanding of the farms overall financial stability. That is a big part of Bruce’s concern about having two of his three children work on the farm - are there enough dollars to go around? I ease his concerns by outlining an exercise to help him and his wife identify their financial needs. “Ok, so it’s not as bad as I thought,” he chuckles. Bruce had never really looked at the current and overall value there is in the entire farm operation, like so many, they are just numbers on paper. He feels asset rich and cash poor, which is normal. “How can we afford to have them both here?” he mentioned again. I remind him they were paying for help now, one full-time man that was ready to retire in the next year, along with part-time help that was hard to find and keep.

We review his recent cash flow, and he agreed most of his land debt was gone this past year, and his cash flow had never been better. They are in a very good position to accommodate Maggie and we agreed that once the full-time employee retires later this year, it would have left a gap in labour along with the funds to pay her.


Susan Hunter, 54 years old

Out of all the Hunter family members, it is my conversation with Susan that is the quietest. She feels she has said enough and said it before; Bruce deserves ownership now and she wants both her children to work together on the farm. “I know you will figure that part out for us, but what are we doing about Matthew? I cannot have him, and his family excluded from the financial side of this.” Matthew is her non-farming son, who is happily married, successful and is the father to Susan’s only current grandchildren. “What do we have to sell to give him some money too?” Susan just wants to know the answers right away on this, she doesn’t want Matthew and his family to not have some financial benefit during this succession journey. “Bruce said you two feel good about our lifestyle needs and his mothers, I need that clarity for Matthew (my son) too.”


Matthew Hunter, 30 years old

Matthew is realistic. His main goal is to make sure his mom and dad are financially secure and find time to enjoy their life outside of the farm. He thinks it’s great that his brother and sister could help grow the business and possibly own it together one day. “They always were working and playing together well when they were young, they were both born to be farmers,” he says. Matthew’s passion was never on the farm and he has found a future in his career and feels very settled about his own family’s future. They want to stay connected to the family - they enjoy their trips home to the farm. I ask what his idea of fair, knowing there is substantial value in the farming assets. “I know land values are crazy,” he says. “But there is no way anyone can afford to capitalize on them, or it wouldn’t be sustainable.” After the last meeting, it became clear that for Matthew, this is about providing a lifestyle for multiple generations if they choose to participate in the work. There is nothing easy about what they do everyday. “I am so grateful for my heritage. What my family has done for me is a great education and a wonderful place to call home. I don’t need anything, but if there was ever something they could do, it would be for my kids and ensuing they can farm one day if they want too.”


Maggie Hunter, 28 years old

Maggie is working off farm and receives a steady paycheque from the dairy operation she is currently employed at. Her expenses have been slim during this period of her life, with no children or boyfriend in the picture, she has accrued a sizeable savings account. And she is ready to put some money into her family’s operation. “I know this can change our revenue stream,” she shares with excitement. “I’ve seen it happen.” We talk about what dollar commitment she is ready to put into the farm and look at her own financial plan. She isn’t phased about taking this risk and re-joining the family farm. “I know we can do it and make it successful.” Maggie has spoken to her parents about moving back into her old room in the farmhouse and not drawing salary for the first 12 months. “I’ve given this a lot of thought, and I am ready for it all.”


Mark Hunter, 26 years old

Mark draws a salary from the family farm. It’s not a large wage, but he is paid monthly. He was also told he would run the farm and its operations one day. He’s been surprisingly open to having Maggie join him on the farm, recognizing her skillset is in sharp contrast to his. He’s just clear he doesn’t want her to have equal ownership to him at this time and doesn’t think the farm can afford to pay her a regular salary as well. I talk to him about what he thinks the value of his sweat equity should be. “A larger part of ownership,” he says. I don’t tell him, but I agree with what he is saying. He wants his years of hard work monetized in this process and I get it.


Grace Hunter, 25 years old

“This baby is coming Darrell whether we are ready for it or not,” she says as she laughs. She is now approaching her third trimester and continues to be anxious about her family’s finances. “Mark is committed to staying here and making the farm work with his father and his sister. But he needs a raise and some clarity.” Grace is appreciative of having me involved in this process. She doesn’t like muddy waters and is looking for clearly defined roles and compensation when Maggie comes on board. She’s planning for the arrival for her first child and ready for the financial planning portion of her life to be clearer as well.


The financial planning part of our process with the Hunter Family is about providing clarity. We know what everyone’s financial needs are, and we provide a simple picture of how to afford this for each family unit and in a tax efficient manner.

The farm business needs a clear strategy for long term success. We discuss a strategy and agree how much should be reinvested to provide for the growth needed in the business to sustain 3 families lifestyle needs. It would involve minor restructuring of the current debt, but it aligns with the vision. We don’t need to pay down the debt in five years, there is another generation wanting to share in the growth and the risk.


Now that they know their numbers for lifestyle and business needs, it’s easier to discuss possible scenarios for succession.


Let’s start with Mary. Once she knew she didn’t need the milk cheque for lifestyle income, it was easier for her to make better decisions. We quantified the difference in potential tax on the transfer now versus at the estate level and Mary was more willing to move her portion of ownership of the farm assets. She feels confident in making this decision knowing it will ultimately benefit the farm and the family long term. She may have also been motivated by the ability to transfer her portion of farm assets tax-free under the current roll-over rules.


Bruce feels educated now on the asset value of the farm. He’s comfortable with his personal net worth and that of the farm. He’s still concerned on what revenue there will be to pay Maggie when she starts taking a draw but is proud of his daughters willingness to move back home with him and his wife and invest in the farm with her savings.


His wife, Susan, has a clearer understanding of what equalization options can look like for Matthew, her non-farming son. Our exercise with her during this phase included education on options of how to generate money for him in the future, as he is not interested in cash at this time. Our team provided options to save for it, sell something, borrow for it or insure it.

Maggie has the willingness to grow into her ideal role. She recognizes her brother has considerable knowledge and experience that needs to be valued. She has modest expectations that I feel are reasonable to building a pathway from employee to owner.


The impending arrival of his first son has had Mark more interested in finances than he ever has been, at least according to his parents. He’s expressed gratitude for helping to quantify his sweat equity value and for finding a financially feasible way to bring Maggie into the operation without affecting his current draw. Mark is excited. He’s excited to see what the transfer of ownership and shares look like for his family and is feeling confident they made the right decision to invest in his family’s operation and not explore Grace and her family’s offer.


Its fair to say Grace is still anxious at this stage, first baby on the way and a shift in how her future on this farm looks with Maggie reappearing. She was looking for a change in her day to day finances, which won’t be happening quite yet; there is no raise for Mark coming anytime soon. But she is expressing confidence in the ownership pathway being proposed.


The Hunter Family has made it through the financial phase with greater clarity and education about their farm and their families future. Each has a financial plan while Mary has a clear financial income plan. The Hunters agreed to consider options for utilizing the farms cash flow to create some off-farm investments that would benefit the non-farming family. There appears to be a sense of calmness about the financial direction the succession plan is taking, and all members are encouraged about how this will translate into the transitions and agreements phase.


In next months article, we will look at transition and estate and develop agreements on the Hunter Family succession plan.

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KEEPING FARMERS FARMING

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