Last month we talked about Len Brown. He came to us just after his 64th birthday on the recommendation of his account manager. Len and his wife Lucille knew they wanted to retire and move closer to their kids within the next year, but they weren’t sure how to accomplish that goal. The problem was Len had a lot of questions – many of them about complex taxation and estate issues. Besides his numerous questions, Len’s family wasn’t communicating their desires well. His manager knew that when it came to protecting the farming lifestyle, achieving financial goals, and helping to reestablish broken communication, there was no one better than my Farming Families team. Len agreed to work with us and this is what happened next.
Each of our new clients begins with a discovery day. This is our starting point. It’s a day where we learn what our clients know they want, what they’re thinking about, and how they think they want to reach their goals. Len and Lucille knew that they wanted to retire. They loved farming, but they were getting too old for the long days and the hard times. Len wanted to move closer to the kids if they weren’t going to farm, and Lucille was determined to spend the rest of her winters warm in Phoenix. Their kids, while uninterested in farming, did want to own their own land. This left us with a big question: do we sell 100% of the land or sell some of the land and gift balance the kids?
We represented the Browns in the land sale process and worked with them to maximize Capital Gains Exemption while balancing sales with purchasing replacement property. Their home half section was sold to a neighbor’s son who was just trying to establish his own farm headquarters. The young man, with the help of his dad, bought a half section and the balance of the land was sold to a land investor who engaged with groPartners. GroPartners would establish ongoing management of a joint venture agreement to operate the land. There were many applicants, but in the end groPartners chose the same young man who purchased the Brown’s home half section. The Browns and their neighbor were both pleased with this arrangement as it left much of their farm intact just with an alternate ownership and operating structure. We also contracted groPartners to help us select a replacement property for Browns and to professionally manage their land.
Financially the Browns were in a very good position. We expected proceeds from the land to exceed $7 000 000. Their home sold for $300 000, Len’s old farm equipment brought in $400 000. Their final crop of grain brought in an additional $300 000. After paying off their debt of $120 000 and line of credit which was nearly $200 000, there was still plenty left over to purchase 2000 acres of replacement land, make travel plans, and find a comfortable home in Phoenix and Airdrie. With no debt, surplus cash of over $2 000 000 and a clear title of 2000 acres, the Browns were delighted to have their journey to retirement go so smoothly. By bringing in their kids and spouses as landowners, we were able to tax shelter an additional $3 200 000 of capital gain. We focused on creating a retirement plan that offered Len and Lucille the cash they needed as well as providing investments, continued farm land ownership, professional management, and tax-deferred rollovers to the grandchildren.
With Len and Lucille, as with all our clients, we knew that cash and lifestyle had to be balanced to create a retirement plan that worked as well as providing a legacy for future generations. To this day we work with Len and Lucille and remain one of their most trusted advisors.
The Browns’ situation isn’t unique. Many Alberta farmers are approaching retirement with more questions than answers. Together we can help determine what matters to you and how we can achieve your goals. Call me today, (403)277-2605.