Salaried Success Keeps Farm Heirs Happier - Elaine Froese | Canada’s Farm Whisperer | Your go-to expert for farm families who want better communication and conflict resolution to secure a successful farm transition


Salaried Success Keeps Farm Heirs Happier

by | Dec 5, 2010 | Farm Family Coaching, Farm Succession, Farming Business, Grainews Articles

Salaried Success Keeps Farm Heirs Happier

In June we celebrate Father’s day. I am curious if your dad shared his financial success with you in a structured way.In June we celebrate Father’s day. I am curious if your dad shared his financial success with you in a structured way. I meet many farming sons who would love to convince parents to employ a better system of sharing the farm finances.

A while back in Howick, Quebec I was inspired by Mario Dumas, a chartered accountant who has a great deal of common sense in helping his farm clients transfer their farms to the farm heirs. Dumas outlined the preoccupations or fears common to farm families:

  • Can children manage the responsibilities of the farm?
  • Can children afford to buy out the parents and succeed in today’s world?
  • Can the parent’s equity be protected?
  • Can we protect our children from spousal breakups?
  • How can the parents be fair to the non-farming children?
  • Can we make the farm transfer without paying large amounts of tax?

Mario Dumas has clients who just want to save tax, but the conversation has to be much larger than that. He sees poor communication between parents and children who have never worked as a team, and the children with little experience or autonomy as two main difficulties. Parents who have only farm assets, and no hobbies or goals or financial plans also make for a tough transfer.

How can you make it easier? Family members who resolve conflicts easily are ahead. Sign up for that conflict resolution course today! Give your adult children ways to obtain experience, training, and autonomy. Take in farm succession seminars like the Agri-success series sponsored by Farm Credit Canada or on the web at Order the Canadian Farm Business Mgt. Succession CD tool for only $15 to see where you need to get started. Diversify your assets, and make some concrete financial plans with a certified financial planner.

Dumas’s 4 steps of a progressive farm transfer are:

  1. Salary to the farm child starting at age 14 and up.
  2. Salary with partial equity (20%) when adult child shares commitment to the business.
  3. Full partnership (50%)
  4. Retirement (100%)…or what I like to call re-inventing Dad and Mom.

“When is this all going to happen Dad and Mom?” says the adult child who has just come back from college. Timelines to the 4 stages are critical. Promises without paper back-up are meaningless to the younger generation who has mortgages to pay, spouses to align goals with, and a need to take charge by age 40, … hopefully somewhat sooner.

Stage One:

This is the period of the teenage years to early 20’s where the children get educated, and the founder gives lots of experience to his salaried workers. Dad and Mom need to provide training and autonomy. Merle Good of Alberta suggests that a separate enterprise like the custom haying or spraying is a good learning ground for junior.

The financial rewards at this stage are a function of the effort the child puts in, and there are also verbal rewards to keep the next generation motivated. Remember that these kids are not only motivated by money, they need their opinions respected also. It’s a good idea at this stage to formalize business meetings on a regular basis to discuss performance and increase children’s participation in decision making, financial records and plans.

Keep the supper table sacred. Don’t make decisions at the supper table, and keep family conflict resolution away from family celebrations. Dumas says “Don’t talk about what happens when father dies on Father’s day!!”

Stage Two:

At age 18 onward as the adult child shows more commitment to the operation, the founder transfers 20% of equity. In Quebec there is an establishment grant, that is not available in the rest of the country. So, make your own grant to your farming child, or else seek out some lenders who will work with a young owner. The salary continues to be based on effort, and now you start shopping for life insurance for the adult child. As parents you need to start formalizing you withdrawal plans with RRSP’s, life insurance, and understanding what your lifestyle needs are. Dumas asks his clients to draw up a budget and keep track of living expenses. He wants his clients to have a clear understanding of what they will need to draw from the farm in the future.

Meetings should be formal, and a strong team of outside farm advisors should be in place for sound decision making. (see

Stage Three:

This is the stage of full partnership where the farming kid gets 50% and a chance to create equity. You meet with your business advisors to see if expansion is a goal. It is also a good stage to employ the Canadian Farm Business Advisory Service (CFBAS) for some financial benchmarking. Dumas also suggests that you may want to sell an additional amount to your child in exchange for an interest free loan. Consult your tax specialist for the best tax strategies at this stage, review your shareholders or partnership agreement and update your will. You might also want to check out critical illness insurance and clauses in your agreements to protect against divorce scenarios. Dumas says to “go crazy” and leave the farm for a few days, just to see how it feels. At this stage the farming parents need to create or grow their hobbies, adjust their re-numeration, and seek outside interests.

Stage Four:

Dad and Mom Re-invent themselves. Farming children manage 100%.

Retirement is just a bad word and not workable for many farm founders. Letting go of 100% of the shares may be hard, but at this stage you are transferring the remaining 50% of the farm in exchange for an interest free loan (mortgaged or not). After the transfer you may hold a non-interest bearing note from the farm.

Since you created a lifestyle budget in stage three, you know full well what kind of cash flow you need for your new life chapter, and prepare a sound cash flow projection for your monthly needs. You also update your inventory of non-farm assets that are designated for your non-farming children in the form of life insurance, real estate, and RRSP’s. Your new role is “advisor” to the family farm, not the “order-giver”.

“Oh Elaine, I wish it was just that easy!”

We all have choices in how we communicate and make choices with our families and our farms. Today is a good day to think about what legacy you are leaving your farming children. They can’t keep waiting for “someday” and empty promises that won’t stand up to legal scrutiny. If your son is graduating from college he is watching his student friends drive their new pick-ups, enforce their company expense accounts, and haul in a professional salary. What are you doing to keep your professional son or daughter salaried and happy growing equity in the family farm?

Elaine Froese is a catalyst for creative communication and change. Her passion is to help farm businesses deal with the pain of conflicting goals and employ new plans for change.

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1 Comment

  1. dan katz

    Dear Elaine,
    I am actually trying to get a hold of Mario. Do you have his eaddress please? I was an investor in the Cabreah fiasco and need to know how I faired. Will you please help me?
    Thank you.


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