Farm Succession Planning: Can Unpaid Farm Work Give Children an Interest in the Family Farm?

September 29, 2017 | Brian P. Kaliel, Q.C.

The answer to this question is likely “no” in most provinces except where the farm chores amount to “exploitation”, or a provincial statute varies general common law rules.

A recent British Columbia Court of Appeal decision, McDonald v. McDonald, 2017 BCCA 255 considered this issue.

The case concerned four farm children, and their hard working parents.  Their parents had spent close to 60 years from the 1940s until the father’s death in 2005 developing and expanding a dairy farm. The farm had been in the father’s family since the 1860s.  The family hired no outside help.  Farm labour was provided by the parents and their four children.  The farm ultimately included land from the father’s and mother’s families.

Both parents wanted to ensure that the family farm continued, and for this purpose they decided to leave it to one of their four children.  They obtained legal and accounting advice.  They set up a farm corporation, which had redeemable preferred shares and drafted Wills which left the farm to one of their sons, and the preferred shares to the remaining three children.  When their accountant advised them that their Wills might be subject to a challenge under a wills variation action pursuant to the former British Columbia Wills Variation Act, they decided instead to make an immediate gift of the farm to one of their sons.

All four children had worked very hard on the farm, without pay, while they were attending high school.  They were vaguely promised that someday the farm would be theirs.

After they completed high school two of the children left the farm, but came back from time to time to help their parents.  They were paid for this work.  Another child also returned to work on the farm and was paid for his work, but later sustained a very serious injury in a farm accident that prevented him from doing productive work.  He continued to live on the farm.

These three children were not informed of their parents’ Estate plans or the gift of the farm to their brother.  Their father died in 2005.  The gift was made in 2006.  It was not until 2009 that the other three children learned about the gift.  By that point the farm was worth about $12 million, net about $9.6 million after debt.  The preferred shares, which were still left to the three children were worth about $900,000.00 (about $300,000.00 each).  The three children sued their father’s Estate and their mother (who was still alive) on the basis that their brother had been “unjustly enriched”.

At trial, they were each awarded damages of $350,000.00, which was to be set-off against the value of their shares.  These judgments were set aside by the British Columbia Court of Appeal.  The Court concluded that the principle of unjust enrichment did not apply because “public policy and reasonable societal expectations” provide a “juristic reason to deny an unjust enrichment to a teenager in respect of unpaid chores” unless the chores amount to “exploitation”.  The Court defined “exploitation” as being “characterized by economic benefits to the parents that are grossly disproportionate to the benefit…the children have as members of the family, or by work by the children that is manifestly detrimental to their health and well-being” (paragraph 79).  The Court concluded that while the family in this case lived frugally, there was no suggestion of economic deprivation.

The Court offered the following comments with respect to farm chores:

[77]         In general, we see the performance of chores by children in a family as positive.  Such work fosters a sense of responsibility and of family.  Ideally, in doing chores, children gain valuable work experience in an environment that is not overly competitive or taxing.  They can learn and experience the importance of doing tasks for others without expecting monetary compensation.

From a farm succession planning perspective, it is hard to say whether there was anything these parents could have done to avoid the expense and stress of this lawsuit, if their objective was to ensure that one of their children inherited the entire family farm as a viable economic unit.  Estate planners often recommend the development of a farm succession plan at an early stage, with open dialogue between parents and all children.  There may be fear that dialogue will create family rifts.  Dialogue may also lead to somewhat different but more acceptable estate plans, and prevent lawsuits.

Anyone interested in learning more about this case can read the case commentary in the LexisNexis Agricultural Law NetLetter, issue 377 (August 7, 2017).

– Brian P. Kaliel, Q.C., Partner, Miller Thomson LLP and Editor of the LexisNexis Agricultural Law NetLetter.


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