Ease the transition to the next generation with careful preparation
Finding the time to talk to your family about succession planning may be difficult. You may also be uncomfortable with the thought of ending your involvement with your farming business and selling or handing over control to family members.
Making the time to develop a solid transition plan for your farming business may ensure that your family’s wishes are met, and emotional stress is minimized.
What you should know up front about transitioning your farm
Unlike estate plans, which concentrate on the heir’s tax liabilities and the various ways to lessen the tax burden, successions plans focus on the future of the farm and are an integral part of an estate plan.
When a farmer decides to retire, a succession plan may include:
- Transferring or selling ownership to a vested family member while maintaining fairness for any off-farm heirs, with equal settlements of money, stock or other assets
- Liquidating farm assets (i.e., auctioning equipment and livestock, and selling land)
- Renting or leasing the land and equipment
- Finding a successor to operate the farm, and selling or contracting the property to him or her
Determine the desired end result
Experts recommend that you concentrate on the desired final outcomes of the succession. Among the important questions, you should ask yourself:
- What do my spouse and I envision for the future of the farm?
- Do I want to stay involved with the operation on a smaller scale?
- What kind of income might I need for retirement or health care costs?
“You also need to think about your family’s role in the transition,” says Donald G. Schreiber, JD, CLU, ChFC, Director, Advanced Sales for Nationwide Financial Services. “Succession planning can be an emotional minefield. You’re not only considering the fate of valuable assets but also managing a family legacy that might go back several generations. Everyone will have an opinion, and things can sour quickly if family members feel they’re not being treated fairly.”
If you have a family member who could and may want to take over the operation, you should be comfortable they have the knowledge and skills to run it profitably. Also, think about siblings who might want a piece of the farm. Are you being pressured to sell by those who don’t share your love of the land?
Getting it right the first time
Succession plans sometimes fail because certain risks were not considered during the planning stages, including:
- Inadequate cash flow
- Liquidation of some assets to provide for retirement
- Poor estate planning
- Unresolved issues between family members or a successor who’s not prepared to lead and manage the farm business
That’s why it’s important to enlist the help of qualified professionals who have no stake in the final decisions. They can help you make sound, unbiased decisions. Qualified professionals may include:
- A financial or estate planner specializing in farm estate planning
- A moderator or arbitrator to help with family discussions
- Your banker to help with finance resources
- Your accountant who has income records and projections for your business
- Your personal attorney, or one who specializes in tax issues
Many resources are available online to help you with your initial planning. Farm Journal has an entire section devoted to succession planning. Its Legacy Project has various tools, checklists and resources to help you with this often difficult but ultimately rewarding task.