Now, you want your estate to help the future generation succeed — not create problems or heartache for your family. 

But if you want your estate to create a legacy of positivity, you’ll have to proactively communicate your wishes through an estate plan. 

Like most people, farmers struggle to talk about estate plans. A recent survey by Investment Planning Counsel indicates that 58 per cent of clients had not talked to their family about their estate. 

Communicating about a farm estate plan is even more important because the legacy isn’t just financial. Farm inheritance deals with deep traditions tied to the land and the farm, assets gifted to successors and the tremendous increase over time in farm asset values.

Although there’s no obligation to disclose the contents of your plan during your lifetime, keep in mind that assumptions and worries are born in that knowledge gap (or rather lack of knowledge gap), possibly creating unintended problems for your heirs. It can also help to talk about your estate when everyone is calm and better able to listen to your wishes rather than when they’re dealing with the stress and pain of grief. 

Aim for low or no drama. Presenting your estate plan is not about getting attention with a big reveal, setting off squabbles or fuelling entitlement. This is an opportunity to create accountability around your wishes, teach the next generation about the importance of financial planning and make sure your family knows how much they mean to you. 

People often anticipate that sharing their estate plans will lead to conflicts, so they avoid these discussions altogether. If you believe that discussing your plan could cause more harm than good, ask yourself why you feel that way and think of other ways you can help your family learn to communicate about money and build stronger trusting relationships. Sometimes it helps to have a trusted third party guide you through these tough conversations.

Follow these tips to have better conversations about your farm estate plans:

1. Carefully choose what you want to share. Before starting a difficult conversation, it can help to gather your thoughts and jot down a few notes beforehand. In my consulting career I’ve noticed that sharing estimates instead of specifics is better because financials are always changing when you are alive. For example, you might say, “The plan is for the home farm to be sold, and the proceeds split equally between each of the grandchildren and potentially great-grandchildren.”
   
   On the other hand, details matter when you’re talking about who your executor will be, who will have power of attorney and who is responsible to execute the wishes of your living will. (A living will outlines your instructions and preferences for health care if you’re unable to express them yourself.)
2. Let them know you are prepared. Create a secure document that contains all the important information your executor and/or holder of power of attorney will need to carry out your wishes in the event of incapacitation or death and let them know where you keep it. Information could include:
   • Where you keep your will, power of attorney and living will. Is there a secondary will for the farm? 
   • Name and contact information of your executor, lawyer, financial planner and accountant.
   • Farm asset list, which includes parcels of land listed by legal description, common name, whether there is any outstanding debt and whose name they are in. Where do you keep deeds, rental agreements and mortgage agreements?
   • A list of off-farm investments, personal insurance and accounts. Include contact information for financial advisors, life insurance broker and banker.
   • Funeral plans, such as cemetery plots and any special wishes.
     
     You’ll also want to make sure that all the important players (executor, holder of power of attorney, etc.) know each other and their respective roles. Introduce your executor to your financial planner, lawyer and accountant. This can help each of them better navigate the situation when the time comes. Executors are often paid, so let your family know ahead of time if that’s what you intend to do.
     
     Choose an executor who can communicate regularly with beneficiaries. Your executor does not have to be related but does have to be organized, patient and understand your wishes.
     
     (For a free template that can help you organize the above, visit farmersbridge.ca and download the Because I Love You list.)
3. Start with the living plan. Share how your financial plan has been set up to take care of you (and your spouse) as you age and how you plan to cover additional costs, such as extra health care, funeral expenses and taxes. Nobody wants to be a burden, but the reality is that many of us will require extra help as we age. This responsibility should not be silently assumed or automatically delegated to the farm successor or the females in the family.
   
   Having these conversations when you’re still healthy minimizes worry or conflict. It also creates a safe time for the family to discuss alternative care solutions and for you to indicate your preferences now rather than have random people reactively decide for you later.
4. Be inclusive and allow room for questions. Set aside specific times to discuss important issues. Whatever you do, do not have it during family get-togethers such as Thanksgiving dinner! One family I know meets once a year to share information — from wills to health care plans to who is hosting family holidays — and then go out for a fun dinner together afterwards.
   
   Adding a formal structure to family meetings can keep discussions focused, smooth and productive. Try to keep them to under an hour and don’t feel that you need to tackle everything at once. You can always book another meeting if it takes the pressure off.
   
   Remember that you’re teaching your family how they can share information and make decisions together when big issues, such as health problems and death, inevitably occur. 
   
   And family meetings don’t require everyone to be physically in the room; virtual meetings can work as well. For example, during COVID my mom, who was having health issues, was lonely. My siblings started hosting Dorothy Zoom calls every Sunday at 6 p.m. A few months later, when she was undergoing cancer surgery, these calls became so important to share information about her health care, and, later, palliative care and her final wishes.
5. Introduce your family to trusted professional advisors. To smooth the execution of your plan, let your family meet advisors involved in your estate planning. It can be as simple as inviting your financial planner to your family meeting to explain issues related to your plan. Or invite your insurance agent to explain how life insurance is part of your succession plan or have your farm accountant explain the farm rollover rule and how your estate tax planning has taken advantage of that legislation.
   
   This can be another great opportunity to teach the next generation about money and tax planning! Although the next generation will likely find their own trusted advisors, you are empowering them with additional supportive people and resources.
6. Explain your estate objectives. Hearing the words from your own mouth about what you want to accomplish with your estate gives your benefactors and executor clarity and purpose. Guessing at what someone wants when they are dead is fraught with misguided intentions, even if they are good intentions. This grey area is often where conflicts arise within families. If you are clear up front, you release them from an unwinnable guessing exercise and avoid negative feelings of self-worth or wrongdoing.

The post How to talk about your farm succession estate plans appeared first on Country Guide.

“Farmers are deeply rooted in their local communities. Giving back to their hometown or local organization can be an integral part of a successful transition plan for a farming family,” says Maggie Dalke, estate and trust consultant with Scotiabank. “Farm families should first and foremost talk about what matters to them and what organizations or causes align with their legacy plans as a family.”

“It’s about their values,” agrees Darrell Wade, founder of Farm Life, a farm succession planning firm in Ontario. “So many are stewards of our land and want to help continue some legacy around agriculture or faith, or what they consider to be a meaningful charity.”

Tony Ambler is a consummate entrepreneur who has founded businesses in several industries including Yorkshire Valley Farms, an organic chicken, egg and turkey business. Ambler says giving is “in his DNA and family roots,” and was a part of his upbringing, with his family placing a high value on charity for the past several decades.

“You either have it or you don’t and it’s quite hard to change it,” Ambler says. “Our family has never been about money, it’s always been about success. If you focus on success and not money, then you are willing to part with it. If you are always focused on money, it’s harder to give it up.”

For Ambler, charitable giving has always meant looking at society as a whole and the infrastructure that supports it, not just at the farming community itself. And it’s also meant conversations with his children, currently in their late 20s and early 30s.

“You want your children to participate and lead by example,” Ambler says. “It’s part of what we learn in 4-H ‘… my heart to greater loyalty, my hands to larger service … For my club, my community, my country, and my world.’”

So when is the ideal time to plan your legacy and make charitable donations?

First and foremost, you need to establish where you want to create impact. Mike D’Alessandro, co-founder of Park Place Financial and certified financial planner says there are common themes when starting discussions with farm families on legacy planning.

“People who give always have a real sense of community,” D’Alessandro says. “They understand that the communities where their business operates either support them financially or provide their workforce, and there is a strong sense to want to make sure those communities are successful and sustainable.”

Once impact is established, it’s important to speak with your accountant, lawyer or financial advisor about your charitable wishes and how best to integrate legacy planning in your overall estate plan.

“We want to be able to determine the best way to meet the client’s legacy intentions, while ensuring their tax is minimized and their beneficiary’s best interests are also considered and protected,” says Matt Holmes of Holmes CPAs and Tax Advisors.

These meetings are crucial to determine the expected tax implications to the overall estate and what impact will the gift have for estate tax exposure. “For example, consideration could be given to whether it makes sense to make smaller gifts over their lifetime to limit their annual tax exposure,” he says. There are also cases where it makes financial sense to create a foundation and establish charitable giving through it.

At 80 years old, Jerry Paxton has deep roots in the agriculture industry and started several businesses over the course of his lifetime in the Ottawa Valley in trucking, warehousing and affordable housing development. But it was a scare with his heart when he was 51 years old and had a near-death experience on the operating table that got him thinking.

“That was when my light went on, and it changed my life.” Jerry had always been involved in giving back to his community and at the time had been overseeing an affordable housing development for seniors outside the Greater Toronto Area. His hospital experience deepened his resolve to give back.

“I realized there was more to life than working to just pack away money,” Paxton says.

As a result, he and his family began devoting more time to causes close to the family’s heart, including overseeing the development of another affordable housing unit for seniors in central Ontario while continuing to grow family businesses.

Upon retiring, the Paxton Family Foundation was established to continue the legacy of giving to causes important to them.

“There is no feeling like giving,” Paxton shares. “We all hear it is better to give than to receive, but there really is no feeling like giving and watching what other people do with it.”

Vital ‘how’ questions

“There can be very advantageous financial and tax reasons for legacy planning which can be very attractive particularly for farmers,” states Maggie Dalke, Scotia Wealth Management 

This includes looking at creative methods available where there are unrealized capital gains within farm corporations. 

“Unique rules involving the use of the tax-free capital dividend account may provide added benefits to gifting of property held in a farm corporation that may also allow the individual to later extract additional proceeds from the corporation on a tax-free basis,” says Matt Holmes of Holmes CPAs and Tax Advisors, who notes it is always best to begin these conversations early with your trusted professional team. 

To help get started, here are some points to consider when planning for charitable giving in your estate plan:

Gifting in your will

“Your will can be amended to add charitable beneficiaries to create a lasting legacy in support of the causes that you care about,” says Hayley Maschek, partner, specialty tax, with MNP. “The gift can be a set dollar amount, a percentage or residual of your estate, or even specific assets. This will allow you to create a legacy that can carry on well after your passing.” Maschek notes there are several other ways you can give to charities on your passing, including: Naming the charity as the beneficiary of your registered accounts (RRSP, RRIF, and/or TFSA); using your life insurance to make charitable donations by naming a charity as the beneficiary of your life insurance policy or even donating the policy itself prior to your passing; or donating other types of property, including shares of a company, or land and buildings. Maschek notes it’s important to outline your goals and then seek professional advice about all of your options. “There are ways to reduce taxes and estate administration fees that will allow you to leave a bigger legacy,” she points out

Unique tax advantages for agriculture industry

“The agriculture industry has tax advantages others don’t,” says Matt Holmes. One example has to do with special rules where the property being gifted is ecologically sensitive land. “Gifts of ecologically sensitive land may allow the donor to avoid having to report and realize any capital gains on the property, while giving a tax credit on the full value of the property. The benefits are further enhanced where the land is owned in a corporation. There are also land trusts dedicated to the preservation of farmland to ensure that the land being donated is only forever used for the purpose of farming. They may also provide donation receipts for the value of placing an easement or restriction on the property that ensures its only future use is for farming purposes.” 

Is it more beneficial to gift in a will or while alive?
“Gifting during lifetime is beneficial where an individual may have more significant taxable income during lifetime as it allows them the benefit of minimizing income tax during their life,” Holmes says. “If an individual has significant estate tax they are facing on their passing due to either large capital gains on property or an expected income, inclusion from RRSPs providing a more significant gift in their will would help to limit the amount of estate tax.” 

How to feel confident with giving in your estate plan

“Planned giving is usually most possible with families that are comfortable with their estate plan; they have an idea of the value of the farm and other assets and have a well-defined succession plan in place. This gives them the space to look outside the family and to the wider community,” says Emily Racine, estate and trust consultant, Scotia Wealth Management. “The most important thing in any legacy planning conversation is to make sure it is being driven by the clients’ values. Often times, there are certain organizations the client already supports and would like to continue to support.”

– This article was originally published as ‘The right gift,’ in the April 2022 issue of Country Guide

The post Deciding on a charitable giving plan appeared first on Country Guide.

This is a great read, tackling one of the most difficult topics every farm must face. How can a family build a future that lasts for generations instead of frittering away what it has worked so hard to achieve?

So let’s start with the book’s title: The Naked Opus.

Why naked? As every farmer knows, planning how to transfer their wealth from one generation to the next can be scary, embarrassing and fraught. The whole family can feel exposed. 

In fact, feeling vulnerable is like feeling naked, says author Chris Delaney. To be vulnerable means you have to face head-on the things that make you uncomfortable and the things you can’t hide.

But, says Delaney, those naked conversations are also an opportunity. Rather than simply finding a way to pass the financial wealth to the heirs, the incoming generation can foster a relationship that creates growth for future generations.

Delaney says that current intergenerational wealth planning is typically short-sighted rather than purposeful. Too often, the idea is to distribute assets and tax savings rather than to focus on long-term strategies that will ensure the continued growth of the family legacy into successive generations.

Traditional planning models create an entropy effect, Delaney says. It’s because “planners fail to take a genuinely holistic and interdisciplinary approach”. 

This leads to a real nugget: “When you invest your financial capital to enhance the social, intellectual and human capital … you in turn increase the chances of your financial wealth being sustainable over many generations.”

Ideally, a team of complementary advisors should help their clients realize that objective.

However, the onus does not fall solely on the advisors. As the steward of your family’s wealth, Delaney says that you need to probe deep and ask lots of questions when you aren’t adequately satisfied with advisors’ responses.

“You must become an advocate for your own planning,” he says. “(Because) any plan that lacks strategic cohesion, authentic governance and an effective communication model is doomed to repeat the shirtsleeves-to-shirtsleeves experience.” (This is where wealth is created by one generation, stewarded by the next, and squandered by the third.) 

Delaney says it pays to demand your advisors give you more than strategically hollow responses and overly simplistic planning suggestions. By focusing on “continuity planning” rather than basic (but still necessary) estate planning (e.g. wills, life insurance), you will generate new wealth and abundance for future generations because you will be addressing several key issues, including the psychology of money between generations; building an “intergenerational family legacy rather than simply splitting the family wealth up among beneficiaries” and focusing on investing in positives as opposed to avoiding negatives.

“The combination of short-term thinking and loss aversion renders clients susceptible to overly simplistic planning suggestions,” Delaney says. “People confuse action with effective results … (so) a $10,000 tax saving feels better than the uncertain gain of building or reinforcing trust in a relationship.”

Those relationships, however, are what generate “continuous opportunity” from generation to generation and they are built by identifying individual and common family values, goals, vision and purpose. Most advisors don’t want to get down into the sticky emotional stuff, but it’s those very elements, says Delaney, that, once prioritized, simplify and fast track the decision-making process.

Delaney quotes Roy Disney saying, “It’s not hard to make decisions when you know what your values are.” And Delaney adds, “Identifying core values establishes a logical launching point into the creation of the family mission statement. That then leads into action mode, a truly strategic process for wealth continuity planning.”

Delaney expertly conveys all this by transforming what could be a heavy, uncomfortable and labyrinthine topic and into an easy-to-read book where fictional advisor Rick Gilmour, an estate lawyer, discovers a more authentic, strategic and values-driven process to grow family wealth for the long-term.

Crafting your own “naked opus,” he promises, will “help you discover the purpose behind your planning, safeguard the fruits of your life’s work, and write your own powerful, authentic family story — a legacy that will last for generations to come.”

The post A novel approach to estate planning appeared first on Country Guide.

A health care directive outlines your wishes about the care you receive — and names a health care proxy to make those decisions — if an accident or illness leaves you unable to advocate on your own behalf.

“It’s in your best interests to have both a power of attorney and a health care directive just in case something happens,” says Matthew Bolt, barrister and solicitor for PKF Lawyers in Winkler, Man. “It’s also in your best interests to execute a power of attorney and health care directive while you have the mental capacity to do so.”

Research published in the journal BMJ Supportive and Palliative Care found that advanced care planning, including considering future health care decisions and communicating those wishes to loved ones, can improve patient care, reduce caregiver burden and decrease end-of-life health care costs.

Despite the importance of advanced care planning, a recent survey shows nearly half of Canadians lack a health care directive, also known as a living will, advanced directive, personal directive or representation agreement.

If a health care directive isn’t part of your estate plan — or you have no estate plan at all — here are six things you’ll be glad you’ve learned about this essential document.

1. Health care directives aren’t just for old folks

Medical crises happen at all ages. The latest data from the Association of Workers Compensation Boards of Canada shows that Canadian workers reported 229,874 traumatic injuries in the workplace in 2018, with farming consistently ranked as one of the most dangerous occupations.

Accidents and other medical emergencies could leave you unconscious or otherwise unable to make your own health care decisions. A health care directive ensures that the person you appoint is legally able to make decisions on your behalf. It’s an important document whether you’re 35 or 85.

2. You must choose a health care proxy

Your health care proxy will be your voice if you are unable to speak for yourself. Their role may include discussing diagnosis and treatment options with health care providers; providing informed consent for medical procedures, including surgeries; reviewing medical records; and making decisions about organ donations and funeral arrangements.

“It’s a document that gives the person named a lot of power so you want to make sure you trust who you’re naming,” Bolt says. “We always advise clients to have a discussion with their prospective proxy beforehand to ensure that the person named is agreeable to (taking on the role)… It can be an uncomfortable conversation but, hopefully, you only have it once and can check that box.”

It’s best to choose someone who can stay calm during a stressful situation, communicate clearly with health care providers and be trusted to honour your wishes. In most provinces, a health care proxy must also be at least 18 years old. If you fail to name a power of attorney, the courts could step in.

“If you do not have a power of attorney and are incapable due to an accident or illness the public guardian and trustee may be appointed as your guardian,” explains Nate Martin, practising partner with SmithValeriote Law Firm LLP in Elora, Ont. “If this occurs, your loved ones may need to make an application to the court to be appointed your power of attorney… there is already a tremendous amount of stress on those close to you, and adding the time, complication and expense of a court application would further increase the stress.”

While you could choose a spouse, sibling, child or trusted friend as a health care proxy, there are a few rules about who can take on the role. Bolt suggests contacting a local attorney to ensure there are no legal issues with your choice of proxy.

3. It’s about more than “pulling the plug”

Your health care directive includes details about what to do in a medical situation where there is no reasonable expectation of your recovery, including whether you wish to be kept alive by artificial means such as life support. Your health care proxy will also be responsible for making the decision about removing you from life support.

Martin notes the “pull the plug provision” is an essential part of a health care directive, but it only covers one aspect of a health care directive.

A health care directive will also include whether you wish to receive cardiopulmonary resuscitation (CPR); artificial nutrition or hydration via feeding tubes and intravenous fluids; blood transfusions; medications for pain, constipation or nausea that would alleviate suffering; or ventilator use.

In creating a health care directive, consider what kinds of decisions might need to be made during medical emergencies and appoint a health care proxy you feel can best advocate on your behalf. It’s also important to communicate your wishes to loved ones so there are no surprises (or disagreements) in the event of an emergency.

Martin also tries to educate clients about the differences between health care directives and physician-assisted death, explaining that a health care directive is not a green light for a doctor to help you die. Those who are against physician-assisted death should still have health care directives so their wishes to remain alive are made clear to health care providers and their proxy.

4. DIY is possible — but might not be the best idea

Most provincial governments have forms to create health care directives on their websites. You can fill out and sign the simple forms, which will serve as legal documents in the event of an illness or accident that leaves you unable to make health care decisions. Even though DIY (i.e. “do it yourself”) versions are available, it’s still a good idea to consult with a lawyer.

“Bringing a lawyer in helps to identify potential issues,” Bolt explains. In Manitoba, for example, the provincial forms allow two proxies to be named. If there’s a dispute between the proxies and no details about who should have final decision-making power, the Health Care Directives Act stipulates that, unless stated otherwise, the person whose name is listed first is given the authority.

5. Your health care directive must be kept updated

Your health care directive is a “living document” that may change over time. Bolt notes that marriage, divorce, births and deaths are all reasons to review your health care directive and, if needed, update it to reflect your current wishes. If none of these triggering events occur, it’s still a good idea to review the document every five years.

“We want to make sure that your intentions when you signed your health care directive still reflect your intentions at the present date,” Bolt explains.

6. The information should be shared

Bolt advises making copies of your health care directive. Your lawyer will keep the originals in their office and copies should be kept in your home and be distributed to your doctor and health care proxy.

You may also want to carry a wallet-sized card to let health care providers know you have a living will and a health care power of attorney (and their name) so they can adhere to your wishes.

In the event of an emergency, health care providers might not ask about the existence of a health care directive; it’s the responsibility of your health care proxy to let them know that a health care directive exists and what it stipulates about your care.

The post Have a plan in place before it’s too late appeared first on Country Guide.

Canadians who don’t have a will typically blame it on the high legal costs, but Bud Arnold, CPA and tax partner with Baker Tilly Canada, believes that a lack of obvious heirs could be another factor that leads many Canadians, including farmers, to ignore estate planning. “One of the motivators to make an estate plan is to make sure that you’re providing for your children or the next generation,” Arnold says. “Where (there are) no children, it’s one fewer motivating factor to get an estate plan in place.”

Arnold sees it differently, though, and says “If you’ve worked a lifetime to accumulate assets, you should have an interest in where those assets are going.”

Canadian inheritance law stipulates that when some- one dies without a will (referred to as dying intestate) their estate should be divided between their spouse and children. With no surviving spouse or children, the law states the estate is passed to next of kin, which could include siblings, nieces and nephews, cousins and so on.

As a last resort, the estate would go to the Crown.

“If you don’t have immediate family, your estate could go to a second or third cousin you didn’t even know existed,” says Nate Martin, practising partner at SmithValeriote Law Firm LLP. “By creating an estate plan you have the opportunity to divide your estate amongst your friends or any charities or institutions you value.”

Rather than letting the government decide who receives your assets, advanced planning can ensure that your assets will go where you want.

In the absence of children or grandchildren, there are many ways to distribute your assets to organizations and individuals who would benefit from your generosity.

Individual gifts: The farmer next door who has rented your land, loaned and borrowed equipment, helped with the harvest and served as a confidant and cheerleader during the ups and downs of operating a farm might be top of mind when it comes to designating who should receive farm assets.

Kurt Oelschlagel, an accountant and national agriculture tax leader with BDO Canada, worked with a couple who had no heirs and planned to leave some of their farm assets to their neighbours. The couple wanted to honour their friendship with a substantial gift in their estate.

“You may wish to leave your farming operation to a trusted friend or deserving employee,” adds Martin. “In this situation, you have the choice of gifting the entire operation to an individual or having them pay a certain value to the estate and having those funds dispersed to other individuals or organizations.”

Your estate taxes will be higher if the farm and assets aren’t “rolled over” to a spouse or child but Canada has no inheritance tax, which means that the estate, not the beneficiaries, pays taxes to the provincial and federal governments when the estate is settled.

Conservation easements: A conservation easement limits land use with the goal of protecting it. It’s a permanent legal agreement that might prohibit building structures or altering the natural habitat while providing benefits ranging from conserving wildlife habitats to safeguarding historic properties.

Since 1962, the Nature Conservancy of Canada has conserved 35 million acres of land across Canada and it partners with farmers to manage more than 18,000 acres of grazing and haying systems to benefit the livestock industry and wildlife.

Gifting an easement to a conservation organization is one possible option for designating assets when you have no heirs — and establishing the easement could help reduce the value of your estate and minimize estate taxes, notes Oelschlagel.

You can set up a conservation easement now to sell the land to a conservation organization and lease it, sell a conservation easement to a non-profit such as the Nature Conservancy of Canada while continuing to use the land (while honouring the restrictions) — and receive immediate tax benefits of either option — or donate the land as part of your estate and include instructions that it should be placed into a conservation easement.

Equipment: Your farm equipment might have a lot of value but an organization that fights world hunger will struggle with the donation of a combine or grain cart, notes Brent Dekoning, associate advisor with Lorkovic Wealth Management of RBC Dominion Securities.

“The charities want the cash value of farm assets; they don’t want to be farm owners,” he says.

But beginning farmer programs, farmer-veteran organizations and college agriculture programs may welcome donations of land and equipment and be able to put it to immediate use to train the next generation of farmers.

Arnold adds that designating specific assets requires a “memorandum of distribution” that is attached to the will and lists specific assets and their designated beneficiaries. Before designating specific assets, check with the organization to make sure the gifts are welcome; some charities might prefer the value of the assets instead.

Charitable foundation: You can establish a charitable foundation or bequeath assets to a donor-advised fund through organizations like Canada Gives and Abundance Canada that will oversee the distribution of assets to various charities.

“It takes the burden off of the executor and passes it on to the foundation,” Arnold explains.

In addition to simplifying the process for the executor, setting up a charitable foundation offers significant benefits such as allowing gifts to be made anonymously and spreading out charitable contributions over time.

Arnold notes that you may not want to leave a large gift to a small organization in a lump sum. Rather than leaving $1 million to the local animal rescue league, you could direct a charitable foundation to gift the group $100,000 a year over the next 10 years, creating an impact that lasts long after you’re gone.

The trustees of a charitable foundation also ensure that funds will be allocated to an organization with a similar mission should one of the chosen charities close or merge after your passing.

Charitable donations: One of the most popular (and straightforward) options for farmers with no heirs is leaving the proceeds from their estate to various charitable organizations.

“A direct bequest is the most straightforward option and I often recommend it when there is a fixed dollar amount to be left to a specific charity,” Arnold says. “If you want to leave $50,000 to the Canadian Cancer Foundation, your executor writes a cheque for that amount and the obligation is clear.”

Cash donations are also most convenient for charities because the organizations know to expect a specific dollar amount from an estate. If the bequest is a percentage of the estate or a “residual asset” of what remains when the estate is settled, Arnold warns, “the charity that is receiving the assets has an interest in knowing how all of the funds of the estate have been handled… and it adds a lot of administrative burden to the estate executors.”

You have a lot of choices about who will receive the proceeds of your estate upon your passing but creating a legacy requires advanced planning. Meeting with your accountant, lawyer and financial planner to create an estate plan that reflects your values and honours your wishes is especially important when there are no heirs in line to carry on the family farm or benefit from the assets you built.

“While it may be difficult to select what organizations or individuals receive funds from your estate if you have no heirs, it is an important exercise to undertake,” Martin says.

The post Estate planning when you have no heirs appeared first on Country Guide.

Despite this historic handoff from one generation to the next, the Investment Planning Counsel reveals that few Canadians have discussed their investment plans with the beneficiaries. Perhaps even more concerning, research from LawPRO has found that 56 per cent of Canadians don’t have a signed will.

These are the kinds of statistics that get a lot of farm families feeling a bit smug. After all, they’ve already signed their wills. The lawyer did them years ago. So the farm is safe and everything is looked after.

Isn’t it?

Well, it’s worth taking a hard look, says Brent Dekoning, associate advisor with Lorkovic Wealth Management of RBC Dominion Securities. “It’s not uncommon to meet with farm families… who have wills that are 10 to 15 years old,” he says.

Estate planning has gotten more complicated — and the value of Canadian farms climbs ever higher — so your estate plan is more important than ever.

“Estate planning was much simpler 10 to 20 years ago when there wasn’t as much wealth,” Dekoning says. “There’s a lot more wealth than there has been in the past, and there are some unique planning strategies that are only available to farm families.”

Regular changes to the laws and tax code might mean that the will you created is no longer effective. Trends in estate planning have changed, too.

Whether you put off creating a will or have a will but haven’t updated it in a while, these five trends are a reason to call the pros to make sure the provisions in your will align with your estate planning goals.

Trend #1: Changes to Trust Laws

In the past, an estate plan might have included the creation of trusts that allowed a second taxpayer such as a spouse to benefit from a lower tax rate.

Trusts were taxed at graduated tax rates and offered exemptions from alternative minimum tax, as well as the ability to tax income distributed through the trust at graduated rates, and to have the trust, not the beneficiaries, pay the tax. Trusts also allowed all unrealized capital gains to be deferred until the death of the last surviving income beneficiary.

The government changed the taxation of trusts in 2016, removing the pass-along tax benefits and taxing beneficiaries at the top marginal tax rate rather than graduated tax rates, according to Kurt Oelschlagel, accountant and national agriculture tax leader with BDO Canada.

“They (trusts) are not as useful anymore given the change in the tax rules,” Oelschlagel says. “When the tax laws changed, there was no grandfathering, which means people need to change their wills because of those changes.”

All estate plans created before 2016 that included a trust for tax purposes should be reviewed.

Trend #2: The Inclusion of Multiple Will Strategies

If the idea of creating a single will feels overwhelming, your reaction to creating two wills might be a resounding no. However, a multiple will strategy could reduce your tax burden and help keep a portion of your estate out of probate, a process that validates the appointment of an executor and is required before changes are made to asset ownership.

As the name suggests, a multiple will strategy involves creating two wills: one for personal assets — including shares of a corporation — that do not require probate, and a second to bequeath assets administered by third parties such as real estate, bank accounts and other investments that are subject to probate.

“As soon as one of the assets in your will triggers probate, it pulls all of your other assets in,” Dekoning explains. “For lots of farmers… creating a separate will to deal with their corporate shares avoids probate, which, in Ontario, (has a fee of) 0.5 per cent on the first $50,000 in assets and 1.5 per cent on assets above $50,000.”

If your farm corporation has $10 million in value, a 1.5 percent probate tax would cost the estate $150,000. By comparison, the cost to get a second will is under $2,000, Dekoning says.

The use of multiple wills is not recommended — or even allowed — nationwide. It’s common in Ontario and British Columbia but in Alberta, where probate fees are low, it is not commonplace and Nova Scotia added a clause in its probate legislation that rendered the multiple will strategy ineffective. Talk to your accountant and lawyer to see if makes sense to prepare multiple wills based on your location.

Trend #3: New Tax on Split Income

Establishing a corporation allows farmers to add family members as shareholders. Under previous tax on split income (or, TOSI) rules, shareholders with the highest salaries could shift — or split — some of their income to shareholders, like a spouse, with lower incomes to reduce their tax liability.

The federal government changed TOSI rules in 2018 and limited — and often eliminated — the tax benefits on split incomes. Under the new rules, all income, including dividends and shareholder benefits, income received through partnerships or trusts, interest income, and income from capital gains, that is split with family shareholders is taxed at the highest individual tax rates.

There are some important exclusions, including a provision that states capital gains incurred due to taxpayer death shall be excluded from TOSI, that could affect estate planning.

“We’re seeing that if we plan the estate properly, maybe we can avoid that tax for the next generation, particularly for someone who is not active in the farm,” Oelschlagel says.

With tax codes and trends changing all the time, your estate plan needs to change, too. An outdated (or non-existent) will only increases the odds that your final wishes might not be carried out as planned.

Oelschlagel recommends reviewing your estate plans every three to five years (or every time you experience major changes such as the addition or loss of a family member or acquiring land or other major assets), explaining, “Whenever tax rules change, we need to look at the (estate plan) to make it more tax efficient.”

Trend #4: Increases in Land Values

Farmers often leave the farm assets, including land, to a farming heir while leaving life insurance, retirement savings and other investments to a non-farming heir, aiming for an equitable split based on the estimated value of those assets. Without an updated will, significant increases in the value of farmland might have created a lopsided division of assets.

The value of farmland has increased each year since 1993 with land ranging from less than $1,000 per acre in Saskatchewan to more than $186,000 per acre on the south coast of British Columbia, according to the latest data from Farm Credit Canada.

In 2019, the value of Canadian farmland increased just 5.2 per cent — far lower than previous years when values increased as much as 22.1 per cent — but even the lower rate far outpaced the returns on traditional long-term fixed income investments, which a 2020 Edward Jones report estimated at less than 3.5 per cent for Canadian investors.

“If your plan isn’t updated and reviewed, you may leave a disproportionate value of your estate to some of your beneficiaries in relation to others,” warns Nate Martin, partner with the SmithValeriote Law Firm LLP in Elora, Ont. “While this plan may have been equitable 10 years ago, it’s possible that the increased value in the land has outpaced (the value) of the life insurance policy or the investment accounts.”

The trend of rising farmland values is among the top reasons Martin advises farmers to review their estate plans.

Trend #5: The Rise of Cryptocurrency

Digital currencies like bitcoin might not be very common — yet — but awareness is on the rise. In fact, the Bank of Canada found that 58 per cent of Canadians use bitcoin for investment purposes.

If your estate includes cryptocurrency, your estate plan should include information about the amount of bitcoin you hold and language that permits your fiduciaries to access and manage the digital investments. Similar to cash assets, cryptocurrency is taxable in Canada and must be included in your estate plan.

In addition to leaving instructions about who should receive cryptocurrency, it’s essential to provide details, including passwords and the whereabouts of the private key needed to access the assets.

The post Five new trends in estate planning appeared first on Country Guide.

In a 2019 article in The Charlottetown Guardian about their planned giving, the couple said, “As business owners, we felt giving an insurance policy was the most affordable way for us to make a substantial gift and name the charity the owner and beneficiary of the policy.”

While an estimated 20 per cent of Canadians donated $9.7 billion to charities in 2017, only a tenth of us plan on incorporating charitable contributions in our estate plans.

Farmers might be the exception, according to Manitoba farmer and family farm coach Elaine Froese.

“Farmers tend to value stewardship, legacy and heritage,” Froese says. “Farmers are deeply rooted and grounded in their communities… and place a high value on helping their communities thrive.”

Be forewarned, though. Incorporating charitable giving into your estate plan is not as simple as designating funds to your favourite non-profit organization. Here are seven key points to consider:

1. Determine how much you can afford to give

Break out the calculator. You’ll need to crunch the numbers to figure out the value of the assets left in your estate after all of the taxes are paid. Of the 48 per cent of Canadians with wills, 18 per cent included charitable legacies in their bequests.

Froese recommends working with a financial planner to run the numbers. It’s essential to ensure that charitable contributions are not made at the expense of the future of the farm. Leaving the next generation with debt in order to make charitable gifts could put your family in jeopardy, she says.

Even if there is just a little left over after debts and estate taxes are paid, Rick Braun-Janzen CFP, director of gift planning for Abundance Canada, a donor-advised charitable foundation, encourages farm families to consider incorporating donations into their estate plans.

“You don’t need a certain amount of money before it makes sense to give to charity,” he says. Plus, he adds, “There are strategic ways you can give that make more sense from a tax and legal perspective.”

2. Talk to your family

Talking about the specifics of your estate plan might be uncomfortable but Froese cautions against keeping the details a secret. Your heirs should not learn about your charitable bequests after your funeral.

There’s a difference, though. This is a conversation, not a negotiation. Some heirs might think they should inherit the whole lot, but talking about your plans for charitable giving isn’t meant to open the door for them to push back. Remember, it’s your decision.

Says Froese: “The bottom line: Let there be no surprises.”

3. Choose the best way to give

Cash might be the most obvious way to donate to charities but Bud Arnold, CPA, accountant and tax partner with Baker Tilly Canada Cooperative, suggests working with your tax professional to explore all of the options.

“Farmers may not have excess cash as part of their investment portfolio,” he adds. “Most of their assets are tied up in farmland, quotas or farm equipment… so we have to consider how you can make a difference with charitable giving.”

You may choose to donate other physical or financial assets such as equipment, real estate, stocks and securities, or life insurance policies.

Establishing a charitable trust or private foundation may also provide advantages. In P.E.I., the Lewis family opted to establish an endowment that allocates earnings from their $500,000 endowment to the Queen Elizabeth Hospital Foundation and the Community Foundation of PEI, an organization that manages 80 funds, including five non-profits that will receive funds through the endowment.

4. Inform charities of your bequests

While charities will happily accept bequests — even if they come as a surprise — notifying charities that they are included in your estate plan has significant advantages.

While larger charities often have the knowledge to accept “alternative” donations such as equipment or real estate, smaller charities might lack the resources to accept gifts outside of cash or stocks.

If you wish to leave appreciated assets to a smaller organization, you may need to partner with a donor-advised fund like Abundance Canada or Canada Gives to handle the bequest — and that knowledge can only come from talking to the charity about your plans.

Providing advanced notice also helps charities with future planning.

“Charities will want to have a conversation about where the assets will make the most impact and whether there is a particular project you’d like to direct your donation toward,” says Arnold. With bigger donations, such conversations are even more important.

5. Consult a tax pro

Designating a portion of your estate to charity could offer significant tax advantages. In addition to lowering your estate taxes, you may be able to deduct the annual premiums of a life insurance policy if a charitable organization is listed as the beneficiary, or you may avoid capital gains tax by donating appreciated stocks to charity.

Your accountant can review your will to ensure that you’re not missing good tax opportunities or creating tax problems, says Arnold.

“Charitable giving should always be driven by the desire to leave a legacy in accordance with your values,” Arnold says. That said, however, it only makes sense to be tax-smart.

6. Assess the legal implications

Your will is a legal document and it must be written in clear, legal terms to ensure that the bequest will be made according to your wishes — and without litigation.

A lawyer can advise you on all of the legal implications of your estate planning decisions and manage all of the details. These could include verifying that organizations are registered charities with the Canada Revenue Agency, outlining restrictions related to how your donation may be used, and establishing charitable trusts to manage funds.

Arnold offers one piece of advice: “Name backup charities,” he says. “If a charity merges, changes its name or no longer exists when you die, designating backup charities takes the responsibility off of the executor to choose a replacement charity.”

7. Keep estate plans updated

You need to regularly review your estate plan to reflect changes in assets, beneficiaries and your relationships with charities.

If you want your financial resources to be part of a lasting legacy in your community, it’s never too late to amend your will to include charitable giving, says Braun-Janzen.

“There is a misconception that charity isn’t something that can be incorporated into your (estate) plan,” he says. “We envision a world where everyone gives generously.”

The post Tips on planning a lasting legacy appeared first on Country Guide.

In a recent decision, the Ontario Court of Appeal determined that an oral contract between a testator and beneficiaries can supersede the terms of a will where the oral contract can be proved. The case arose from a dispute between siblings over the assets of their late father, which consisted of farming land, equipment and other property.

The farming operation had been in the family for five generations. The son worked full time alongside his father for 24 years. The daughter worked off the farm and was not involved in its operation.

The parents each had wills that left the estate assets to the two children in equal proportions. The children were also named as co-executors.

Following the father’s death, the son alleged he had an oral contract with his parents that if he stayed on the farm and worked with them, he would receive the farmland and its assets after his parents stopped farming. The oral agreement was made in 1977, when he was 19 years old.

• Read more: Estate planning and the legal system: Part I

There were no living witnesses to the alleged oral agreement, other than the son. The agreement was never discussed with the daughter. However, various witnesses indicated that the parents intended to transfer the farm assets to the son and certain steps were taken in furtherance of the alleged agreement, including transferring the milk quota.

In October 2001, the father was admitted to hospital with terminal cancer. He passed away at the end of November 2001. No changes were made to his will prior to his death.

The son subsequently commenced a lawsuit seeking a declaration that he was entitled to the farmland and business notwithstanding that the wills directed the estate assets to be divided equally between him and his sister. The case went to trial.

The trial judge dismissed the case because the son could not prove the existence of the oral contract. As a result, the estate assets were to be distributed equally to the son and daughter, in accordance with the wills. The son was also ordered to pay his sister $275,000 for her legal costs.

The son appealed the decision to the Court of Appeal and succeeded in overturning the decision. The Court of Appeal found that the trial judge failed to appreciate the nature of the relationship between the father and the son in their operation of the farm and that this led the trial judge to disregard evidence supporting the existence of an oral contract. The Court of Appeal ordered a new trial. The case settled before the new trial.

This decision is significant. It emphasizes the importance of having an up-to-date estate plan that reflects the current wishes and desires of the testator to prevent disputes among beneficiaries. As evidenced by the $275,000 cost award, estate disputes can be very costly and, often, the estate’s assets are insufficient to support such costs.

Estate litigation also has the effect of tearing families apart, something that many testators never envision or imagine will happen. However, unwritten promises and contracts are the kind of thing that one should expect will be dredged up following the death of a parent, particularly when one or more of the beneficiaries are unhappy with the terms of the parent’s will.

In light of this, here are four tips to keep in mind: (1) if promises have been made to beneficiaries, or oral contracts have been entered into by the testator, it is best to capture these promises or agreements in the will; (2) make sure all beneficiaries know about oral agreements that might contradict the will; (3) wills should be reviewed on a regular basis to ensure that they are consistent with what the beneficiaries have been told and the testator desires; and (4) if there has been a change in personal circumstances — such as the birth of a child or grandchild, a divorce or marriage or the death of a beneficiary — the will should be updated.

Clarity is the key to successful estate planning, and the avoidance of future disputes should play a central theme in the preparation of one’s will. Otherwise, as stated by a 19th century journalist, Ambrose Bierce, “Death is not the end. There remains the litigation over the estate.”

Nadia Campion is a business litigator at Lenczner Slaght in Toronto. Campion’s clients include small- to medium-size businesses, individuals and associations across a range of sectors in civil litigation such as commercial disputes as well as wills, trusts and estates litigation. She can be reached at ncampion@litigate.com or 416-865-2974.

The post Estate planning and the legal system: Part 2 appeared first on Country Guide.

What do you want your money to do? How much should you give and when? What are the tax benefits?

For many farmers, there’s also the question of how best to give to charities through your estate and succession planning. Additionally, in the last few years some new ways to save taxes while giving have been added to the playbook.

Society’s thinking about giving has also changed. As fewer families attend church, the younger generations aren’t being taught to put something on the plate Sunday after Sunday. Instead, they are moving toward more spontaneous, secular giving. For example, there’s the phenomenon of crowdfunding where someone asks for money online and it goes viral. In the last few years this has reaped millions of dollars that would have historically been directed to registered charities.

It’s not for lack of tax receipts. Donations to registered Canadian charities are eligible for a charitable donation tax credit for individual donors or for deduction if the donor is a corporation.

Over 85,000 charities are registered in Canada, so individuals can give to these charities directly for specific causes and get a receipt to claim against income taxes. To qualify to provide tax receipts, these charities must follow certain rules, like having a board of directors and separate annual CRA filing.

Within this CRA list are charitable foundations, like the Mennonite Foundation of Canada. Although anyone can set up a foundation, they must follow the CRA rules, including separate annual filings and a board of directors.

Foundations pool the donations, take care of all the paperwork and administrative responsibilities, and invest the funds on the donor’s behalf for a small fee. For example, the Mennonite Foundation of Canada charges about one per cent, says Sherri Grosz, MFC’s stewardship consultant in Kitchener, Ont.

Another way is to set up your own family trust and hire a foundation like Gifts Canada to administer it for you. You control the investment and how it’s donated. It’s called donor-advised, and you can change it over the years.

Many foundations have sunset clauses, and you can set where your money is to go in stone at the very beginning.

With pooled foundations, you can get the receipt right away. Currently, you can donate shares of a company, equities, ecologically sensitive lands and cultural property and, if they have increased in value, any capital gains would be tax exempt. However, if you sell those assets and want to give cash, you have to pay the tax on the increases in value.

So not only do you get the tax deduction, you don’t have to pay the income tax on any increase in values.

New budget rule

Proposed during this spring’s federal budget is an exemption for capital gains tax for charitable gifts of cash proceeds from disposition of private company shares and real estate. Previously this exemption was only available for when you sold and donated publicly listed securities, ecologically sensitive land, and certified cultural property.

Beginning in 2017, this exemption would include the capital gains when you sell private assets, like shares and real estate.

In theory you could donate some of the amount you might owe for capital gains when you sell a company. Instead of paying more to the government, you are able to give more to your favourite charity.

Accountant and partner at Collins Barrow in Elora, Ont., Tom Blonde uses the following example to explain: You sell your family farm corporation for $3 million to someone outside of the family. You’ve already used up your available capital gain exemption and the marginal tax rate is 50 per cent. (If there’s no donation, you’ll only get $2.25 million net, after the capital gains tax.)

However, if you donate $1 million of the proceeds within 30 days of selling your farm, you’ll get a charitable credit of $500,000. You’ll also be taxed on only $2 million of capital gain, and $500,000 tax on gain is eliminated by charitable credit. The final result is that you donate $1 million and receive $2 million net of capital gains tax.

Make sure you talk to your accountant about how this might work for you, and please note that final legislation and assessing practice has not yet been determined.

Before you do anything, MFC’s Grosz says it’s really important to take some time to think about what you want your money to do instead of randomly giving to whatever group comes asking. “What are your hopes and goals for your donations?” asks Grosz.

Although donors into the Mennonite Foundation of Canada are of all ages and socio-economic classes, the majority are older than 50. This group tends to have more disposable income, understands the fragility of life as part of the sandwich generation, and is doing estate and retirement planning, says Grosz. Plus they’ve been raised within the church and are comfortable giving through their church.

MFC gets Great West Life to invest the pooled funds for them in one of two ways — one is higher risk, with 50 per cent equities, and the other is a more conservative investment based on bonds and mortgages. In keeping with their faith’s principles, the MFC screens out of GWL’s portfolio companies that sell alcohol, tobacco or gambling. “If you are preaching against it on Sunday, you shouldn’t invest in it on Monday,” says Grosz.

Estate planning and giving

Although there’s no inheritance tax in Canada, when someone dies, their estate has to pay their income tax and everything is deemed disposed on the date of their death. This means everything, even tax-sheltered investments like RRSPs, are sold in the year of death and the estate has to pay income taxes.

Living poor and dying rich does have its tax implications. Using predetermined charitable giving to counter this tax bite is one strategy some farmers are employing to decrease their taxes on their relatively large estates.

Grosz suggests getting the help of an accountant to figure out if it would be better to have the tax receipt during life or after to decrease the tax bill on the estate. Sometimes it means keeping the donation until after passing away so the tax credits can be used against estate taxes. Other times it’s better to give while earning more. Maybe a combination, or phased-in strategy is best for you.

In the past, MFC has been willed land but it tends to be more complicated, and usually property is liquidated with the estate, says Grosz.

Grosz says some people make their favourite foundations or registered charities the beneficiaries of life insurance policies. They pay the premiums and get a tax receipt for those premiums paid in their lifetime and when they die, the charity gets the insurance proceeds.

Sometimes a donor will even transfer the ownership of a life insurance policy to the charity while alive and pay the premiums, and, if they get a receipt can use these premiums as a tax deduction.

Keep in mind that if you transfer a policy while you’re alive but no longer insurable, it may have significant fair market value so the donation credit might be larger. However, you’ll get a much larger deduction if you buy life insurance through your farm corporation at lower tax rates.

On death, the life insurance proceeds are paid out tax free to the estate through the capital dividend account, and then the estate makes the donation and gets the larger credit.

First-time donors

For smaller donations, a few years ago the government added the First-time Donor’s Super Credit (FDSC) to entice people to give to charitable organizations. It supplements the value of the charitable donations tax credit (CDTC) by 25 per cent on donations made after March 20, 2013, by a first-time donor.

If neither you nor your spouse (or common-law partner) have claimed and been allowed a charitable donations tax credit for any year after 2007, you are considered a first-time donor.

This super credit applies to a gift of money made after March 20, 2013, up to a maximum of $1,000, in one taxation year from 2013 to 2017. The claim for the FDSC can be shared with a spouse or common-law partner, but the total combined donations claimed must be under that $1,000 cap.

The post Smart farm strategies for charitable giving appeared first on Country Guide.