Thursday, August 27, 2015
Discussing your farm succession plan is not the easiest conversation to have with family but it is the most important conversation you will have. Deceiving yourself into believing there is nothing to discuss is far from true. A “pa and ma” farm operation with children involved appears to have everyone stuck together like glue. For years, everything can run smoothly until an event like Dad getting sick or passing away occurs. Suddenly the family faces turmoil like never before, wondering who will call the “shots” now. Mom has always been Dad’s sidekick. Will she still be or is the control given to their son or daughter? If there are more children, then that makes the situation even more complicated. Knowing rather than assuming what will happen is best decided in advance. A farm succession plan ensures the intentions are clear to avoid any confusion.
Resources to start the process of having the discussions and determining the best strategies are the intentions of this blog. Anytime you are learning the ropes, you look for true and tested methods. Because everyone’s farm operation is different and everyone has unique skills, talents and personalities, a “true and tested method” may not work for you. A specific strategy has to be molded to match your farm family’s objectives. Let’s be honest, farm succession plans are a “work-in-progress” taking years to evolve. “Talk can be cheap” when you say you will do something rather than actually following through with your intention. Action is a requirement to ensure the farm succession plan succeeds. To build a successful succession plan, conversations start the process.Setting the Ground Rules
Setting the ground rules for productive farm family discussions sounds easy but I know first-hand rules can get tossed the minute a conversation gets heated. In that moment, emotions flare, thinking is far from rational, and progress is stalled. The main purpose for scheduling a family meeting is for everyone to share their own personal agenda. Not only should everyone bring their agenda but also their listening skills. This meeting may be the first opportunity everyone has a chance to know what another family member is thinking or feeling. Hearing what is being shared, possibly for the first time, may be shocking. You may have not realized your family harbored these thoughts. Give yourself time to process what has been shared before responding. Reacting too quickly may lead to an inappropriate response spurred on by anger. One true and test piece of logic is “always remember to put brain into gear before engaging mouth."
Seek First to Understand
I admire Elaine Froese for the skills and talents she has for helping farm families deal with the tough issues surrounding succession planning. In Elaine’s role as a certified farm family business coach, she provides valuable resources, one being her latest book, Do The Tough Things Right. Tearing down barriers and building strong communication skills is the focus of her writing. In my hunt for resources, this book provides excellent worksheets to help identify the key issues and challenges facing farm families.
Before having the first meeting, each family member is encouraged to complete the Key Challenges Audit Sheet designed by Elaine Froese. Although the recommendation is to put an “X” next to the challenge your family farm business faces, I suggest numbering them in order of importance. Because everyone sees things differently, numbering the challenges as Number 1, 2, 3 and so on, determines which issues require the most attention. As a family, you can then decide the approach. Does ironing the details first on the small issues build momentum before the big issues are tackled or does energy need to be first dedicated to the toughest ones?
Another useful tool found at Elaine Froese’s website is 60 Questions for a Farm Transfer which was developed by The Quebec Farmer’s Association and FGCAQ. If you are like most people, you may be unsure what questions to even consider asking. This list takes away the guess work since the questions covers a variety of related topics such as the communication plan, development plan for the farm enterprise, planning for the transfer of farm assets, and a host of others.
Using the Tools
Once the ground rules have been established and the issues have been identified, you will require some tools. You may or may not choose to have a third party present at the meetings. If you agree to conduct the meeting on your own, you may democratically elect or appoint a family member to be the chairperson. This person may be the peacemaker in the family who everyone feels comfortable with and respects.
I especially like Elaine’s methods of using a “talking stick” and index cards as tools to control the conversation. Elaine explains her methodology in her book, Doing the Tough Things Right.
“As a coach, I use a “talking stick” - a Beanie Baby® bull – that family members pass around at random when they wish to speak. The person holding the bull gets to speak without interruption. This method works well for drawing out the conversation of the quieter members of the group. I also use Undiscussable™ cards. As I listen to the family or couple, I write down one word on a bright yellow index card. Words that often come up are trust, fairness, inheritance, power, control, debt, recognition, conflict style, etc. These cards then are the personal pack for the family to use as discussion starters in business meetings around succession or transition planning. It is a way for me to keep track of the key issues and a way for them to name the main issues that are keeping them stuck. This sounds much like being in kindergarten with flash cards, but this very effective tool keeps the conversation focused on the issues and confirms the issues with new couples on the family team. Then you don’t waste time talking about the weather.”
Keep the Talks Going
Both listening and talking through the challenges are the best and only ways to resolve any problems and concerns. Ignoring the problems doesn’t make them disappear. When repeated disagreements occur, relationships are strained to the point of breaking. Just like a chain will break with continuous pressure, so will relationships. Then, the difficult part is repairing the relationship when extensive damage has been done. If you think reaching a compromise about any farm planning decision is difficult, realize that it is also difficult when a family cannot spend Thanksgiving dinner together. You soon see that a severed relationship not only affects the immediate generation but the effects are also felt by the next generation, the grandchildren. You often hear that you can agree to disagree about farm family decisions. We all have the option to choose and respect the outcome. The important part is that we all had the opportunity to contribute to the outcome.
Equipping yourself with information from various resources is a sure way to become knowledgeable about succession planning. You can use available worksheets and techniques as well as other professionals to help guide you through the process. Unless you schedule a meeting around the kitchen table over a cup of coffee and cinnamon buns, you cannot know exactly what each person involved is thinking. Food not only comforts but fuels the mind. Everyone thinks better on a full stomach. When you sit around that kitchen table, I believe having an aerial photo of the family farm would be a valuable tool. Whether one person or several people contributed to the success of this farming empire, it’s beneficial to remember why the family meeting was called to order. The main objective is to share in the success of the empire for generations to come. Harmony is what you are trying to achieve so the family empire lives on if that is the direction you choose.
Thursday, August 20, 2015
Many disputes can be resolved with good communication skills. If we would consider the impact of our words on others, we might not say them at all. When we are not thinking clearly because we are angry, that’s when words spew out of our mouths with little consideration. Everyone knows it’s impossible to retract words once they have been spoken out loud.
You would think that we put our vocal chords to good use and speak far more any other mode of communication. Yet according to this chart, 70% of our communicating is spent listening compared to speaking, reading, or writing. Because listening is one of the skills we use the most, perfecting this skill now has a heightened importance.
Based on the research of: Adler, R., Rosenfeld, L. and Proctor, R. (2001)
Interplay: the process of interpersonal communicating (8th edn), Fort Worth, TX: Harcourt.
Whatever skills we want to improve, we look for resources to help us. We don’t necessarily need a university degree on a particular subject but certainly some pointers are helpful. SkillsYouNeed, an international web-based service founded in the heart of Wales, a rural part of the United Kingdom, provides valuable insight on this topic. A practical and useful list, 10 principles of listening, has been compiled to hone our skills. For expanded information on each principle, click here.
1. Stop Talking. “If we were supposed to talk more than we listen we would have two tongues and one ear.” Mark Twain.
2. Prepare Yourself to Listen. Relax.
3. Put the Speaker at Ease. Help the speaker to feel free to speak.
4. Remove Distractions. Focus on what is being said.
5. Empathize. Try to understand the other person’s point of view.
6. Be Patient. A pause, even a long pause, does not necessarily mean that the speaker has finished.
7. Avoid Personal Prejudice. Try to be impartial.
8. Listen to the Tone. Volume and tone both add meaning to what someone is saying.
9. Listen for Ideas – Not Just Words. You need to get the whole picture, not just isolated bits and pieces.
10. Wait and Watch for Non-Verbal Communication. Gestures, facial expressions, and eye movements can all be important.
As you read through this information, you may be thinking, “I don’t get it! What does this have to do with finances?" Well, as a matter-of-fact, listening has everything to do with finances and financial planning. When your spouse shares their goals, dreams and aspirations, are your listening ears turned on? When you need to have a family meeting to discuss your farm succession plan, are you prepared to listen attentively to family members’ views? When your partner is justifying why you should agree to purchase the cottage or boat, are you patient or impatient?
A money matter is not the only issue where you are trying to convince others to accept your point of view. Perhaps the importance lies in listening to others’ concerns in the attempt to understand rather than to be understood. Here’s your challenge. If your listening skills need “some” work, pick one or two of the principles and apply them in your daily conversations. See if you can become a better listener. Pay attention to the results. You may be pleasantly surprised.
Thursday, August 13, 2015
Del Elgersma is a lawyer and founding partner of Beacon Law Centre with three offices, one in Victoria (Royal Oak), one in Sidney and another in Brentwood Bay, British Columbia. Del has graciously agreed to share his publication, Joint Tenancy as an Estate Planning Tool. dditional publications may be found at Beacon Law Centre.
Joint Tenancy as an Estate Planning Tool – Pros and Cons
by Del Elgersma
Estate planning means different things to different people, but most people agree that some of the goals of estate planning include:
- Simplifying the administration of an estate
- Minimizing probate fees
- Ensuring that property passes to the intended person
One of the most common strategies used to achieve these goals is to own property with another person in a joint tenancy.
Joint tenancy or tenancy in common
Property owned by more than one person must be owned in one of two ways: joint tenancy or tenancy in common. In practical terms, the chief distinction between joint tenancy and tenancy in common is the right of survivorship. Only joint tenants enjoy right of survivorship.
If you own property with another person as tenants in common, on your death your interest in the property becomes part of your estate to be passed on according to your will. If you own property with another person as joint tenants, on your death your interest in the property passes to remaining joint tenant(s) by right of survivorship. It does not form part of your estate.
The law presumes that an asset (other than land) held in two or more names is owned as a joint tenancy, unless there is an indication that the owners own it in shares. So, for example, household goods, vehicles, bank accounts and investments owned by two or more persons will be presumed to be owned by them as joint tenants, unless their respective shares of the assets are specified or there is a statement that the asset is held by the owners as tenants in common.
However, in the case of land the common law presumption of joint tenancy has been altered by statute, so that land owned by two or more persons is presumed to be owned by them as tenants in common unless the title expressly states that they are joint tenants.
Right of Survivorship
Because of the right of survivorship, a joint tenancy can meet the estate planning goals of simplifying the administration of an estate, minimizing probate fees and ensuring that property passes to the intended person. It is a strategy used by the majority of married couples, who own their major assets, such as their home, as joint tenants.
The right of survivorship ensures that when the first spouse dies, these assets pass to the surviving spouse without being subject to the delays and expense of an application for probate (with a little extra planning, it is often possible to avoid probate altogether on the death of the first spouse). The right of survivorship also ensures that ownership of the assets will not be affected by claims under the Wills Variation Act, if there is a will, or by the rules for intestate distribution under the Estate Administration Act, if there is no will.
Beware of the Consequences
While joint tenancy is most common between spouses, it is becoming increasingly common between parents and children. The purpose is the same – to simplify administration of the parents’ estates and to minimize probate fees. Often the joint tenancy is created after the death of one of the parents. However, this can result in some unintended and undesirable consequences. Consider the example of a parent who has transferred her assets into a joint tenancy with one of her adult children:
Loss of control
The parent cannot later cancel the transfer if she changes her mind. As well, in the case of land, she will not be able to sell or mortgage the land unless the child also signs.
The transfer is a disposition for income tax purposes. The 50% interest in the property transferred to the child is deemed to have been sold at its fair market value and, unless the asset is the parent’s principal residence, a portion of any capital gains will be added to the parent’s income. This could result in the parent having to pay tax even though she received no payment from the child.
In addition, one half of any future capital gains will accrue to the child. If the property is the parent’s principal residence and the child lives elsewhere, the principal residence exemption will be lost for the child’s share of any future increase in value of the home.
Property transfer tax (Applicable in certain provinces)
In the case of land, property transfer tax will be payable at the time of transfer, although there may be an exemption available if the property is the principal residence of either the parent or the child.
Exposure to creditors
The child’s interest in the property will be subject to claims by the child’s creditors. If the child is married and the property is used for a family purpose, it could be subject to claims by the child’s spouse if there is a breakdown of the child’s marriage.
The child may pass away before the parent, negating the purpose of the joint tenancy. If other children were also on title with the parent as joint tenants, on the death of the parent the asset would pass only to the surviving children, and the family of the deceased child would receive nothing.
The law presumes that a joint tenant who contributed nothing toward the property holds his or her interest in trust for the contributing owner. An exception is the presumption of advancement (meaning a gift in advance of a person’s death). According to case law, the presumption of advancement applies to transfers of property from one spouse to both spouses, or from a parent to a child. However, the presumption can be rebutted. Accordingly, if the child has other siblings, they might claim that the child holds the property in trust for all of the children, while the child with title would claim that the right of survivorship applies. This could also arise if the joint tenancy resulted in property passing to children to the exclusion of a spouse, or to a spouse to the exclusion of children.
Some of the factors that may rebut the presumption of advancement and suggest that the child holds the property in trust for the parent’s estate include the following:
- the parent was the sole owner of the property prior to the transfer
- the property was controlled exclusively by the parent
- the child did not report any of the income from the property on the child’s income tax return
- the child did not receive or spend income generated from the property
- there is evidence that the joint tenancy was created simply to avoid probate fees or to provide immediate access to the parent’s funds after death (e.g., for funeral expenses).
Another unintended result can occur if spouses in a second marriage own property together as joint tenants, and each have children from previous relationships. On the death of the first spouse, the property will pass by right of survivorship to the surviving spouse. The spouses may have had wills that provided that the property would ultimately pass to the children of both spouses, on the death of the last of them. However, the surviving spouse can change his or her will so that the property goes only to that spouse’s children, and the children of the deceased spouse would receive nothing.
Put it in Writing
To avoid the possibility of a dispute between the child and any other spouse or other children of the parent, it is a good idea to put the parent’s intention into writing. If the transfer to joint tenancy would not result in capital gains tax, or the parent is prepared to pay the tax, the parent could sign a deed of gift to confirm that beneficial ownership in the property is transferred to the parent and child as joint tenants with right of survivorship. On the parent’s death, it would be difficult for other beneficiaries to argue that the child holds the property in trust for the parent’s estate.
Alternatively, the parent could require the child to sign a declaration of trust confirming that the child does not have beneficial ownership in the property, but simply holds his or her interest in trust for the parent. In addition to reducing the possibility of a dispute between the child and the other beneficiaries of the parent’s estate, the declaration provides the parent with a greater amount of control over the property, and may prevent the deemed disposition of the property for income tax purposes (because beneficial ownership of the property remains with the parent).
However, Canada Customs and Revenue Agency (“CCRA”, formerly Revenue Canada) has suggested that the existence of a declaration of trust will not, in and by itself, be conclusive evidence that beneficial ownership of the property has not changed. It would depend on all of the circumstances.
CCRA’s position is that if legal title to an asset is transferred from a parent to the parent and a child, but beneficial ownership remains with the parent (as confirmed by the declaration of trust and other circumstances), a disposition for income tax purposes has not occurred. Having said that, CCRA pointed out that in such a situation a true joint tenancy with the child would not exist and, in its opinion, the goal of reducing probate fees would not be achieved because the property would not pass to the child by right of survivorship.
Joint tenancy can be an effective part of an estate plan, but must be used with caution. If you have questions about creating a joint tenancy or other estate planning strategies, call us first for professional advice.
For a discussion of other strategies to avoid probate and probate fees, click here.
Thursday, August 6, 2015
Losing touch with our money is becoming a reality in this fast-paced, pay-with-plastic world. The fact is when we look at our bank accounts we see numbers rather than money. Just as an elevator in a building takes us up or down to any floor, so do deposits and withdrawals affect our bank balances. The frightening experience is when the elevator drops our balance below the ground floor, plunging into dark and dismal negative territory. For me, this happens when my withdrawals exceed the deposits. No surprise there. Since the tendency is to blame someone or something for our misfortune, the culprit may be our method of payment. The little plastic card, whether a debit or credit card which supposedly is intended to make life convenient, has become too convenient. Our account balance might look different if we were given a limited amount of cash to pay for our discretionary purchases.
“Wait a minute! No one carries cash so why should I?” I hear your reasoning. A good motive is to gain control over the rate of withdrawals from your account and to instill more saving. If you wanted to be healthy physically, the advice is to “eat less and exercise more.” To stay healthy financially, we are advised to “spend less and save more.” A “Cash Diet” for personal expenses may control the numbers dropping your bank balance. Oh, but how we dislike and despise diets whether related to food or money!
Seeing The Problem
When we rely on plastic cards, we fool ourselves into believing we have access to an unlimited pool of cash. We are banking on our next pay cheque to make the next credit card payment. If you are like me, you can tell yourself “I am in control of my spending” but in reality sometimes I am out of control. Out-of-control spending brings the usual lecture. “You should know better.” After walking into Suzanne’s, a women’s clothing store, at the peak of their summer sale, somehow I was lured into purchasing four pairs of capris because the sale price was fantastic. The deal was: the greater the number of items, the greater the discount. Another reality check! No matter how great the sale, you still spent more than you intended. Bottom line is I spent $150 even though I saved $45 off the regular prices. Believe me, I can justify the circumstances along with the best of you. For women, the weakness may be clothes; for men, I’m told it’s big ticket items which lures them to spend. “Go Big or Go Home!” Had I walked into the store carrying cash with the intention of spending $50, I would’ve had to choose. Today I could’ve been $100 richer. Do you ever find yourself justifying your motives with would’ve and “could’ve”? Rationalizing doesn’t change anything. Take another occasion when I forgot my purse at home. All I could spend was $20 on groceries with the cash stashed away in my vehicle for emergencies. I knew precisely my limit and stuck to it because I didn’t have any alternatives.
Cure What Ails Your Bank Account
Out-of-control spending is often cured with an allowance, a specific amount of cash for weekly discretionary spending. Typical discretionary expenses refer to entertainment, restaurants, hobbies, or gifts but overspending in any category, even groceries and fuel, can be problematic. You are looking to curb your spending in the problem areas. Generally, the fixed expenses, such as utility bills to maintain your home or vehicle expenses used for employment purposes are requirements. There’s no question – these bills are necessary. The challenging task is to determine a reasonable cash budget for the balance. You have to make it on that amount. If you spend too quickly, you will learn you do not have any cash remaining for the balance of the week. Planning wisely how to live on a cash diet is exactly what 23-year old Kathleen Elkin is learning as she attempts to live on $125 a week for her daily purchases outside of rent and utilities. You, like Kathleen, will learn that it can be hard to stay on track when out-of-the-ordinary expenses, like a wedding gift, crop up. Click to read Kathleen’s story about her “Cash Diet”.
Why live on a “Cash Diet”?
Many might ask why anyone would want to attempt this challenge. The answer isn’t complicated. Witnessing first-hand how quickly cash can be spent and exactly how much is being spent is eye-opening. Another reason is to simply get in touch with your money and gain control when you have specific goals you wish to attain. Providing a cash allowance each week helps better plan how the allowance will be used especially when dealing with those run-away items.
When you want a bird’s eye view of your spending frenzy, tracking your expenses shows where the brakes need to be applied. Tracking can help to a certain extent. However, if you want to make a sincere effort to reduce the total, using a “cash diet” may be the answer to limit your spending.
The all-too-familiar word, “diet,” frightens many into understanding that changes to eating habits are necessary. Whether a bathroom scale or a doctor is screaming loudly, we know the reason for dieting is justified. The same can be said about bank, credit card, or net worth statements. These statements can also be screaming, “Reduce your spending. Spend sparingly.” If you are up to the 30-day challenge, try implementing the cash diet in your frantic, quick-pace world and test the results. Find out whether a “cash diet” can make a difference in your world.