Helping farmers without heirs transition to retirement

08/16/2024 — Key takeaways:

• According to the USDA, the average age of principal farm operators is over 58, and many do not have children willing or able to continue the farming tradition.¹
• Your farming clients will want to utilize a will, durable power of attorney, advanced medical directive and possibly a trust.
• Unlike other businesses, farms are often deeply intertwined with legacy and identity.

When it comes to succession planning, farmers face unique challenges. For many, the goal is to pass the family farm to the next generation, but what happens when there are no children to take over? This scenario is becoming increasingly common, and you can be well-equipped to guide your farmer clients through the complex process of retiring without direct heirs.

“Farmers must decide what to do with property in ways that reflect their personal values and financial goals,” according to Nationwide Advanced Consulting Group Technical Director Steve Hamilton, JD. “That’s true even if they lack natural successors.”

The unique challenges of farm succession planning

Unlike other businesses, farms are often deeply intertwined with family legacy and identity. However, the agricultural sector is experiencing a demographic shift. According to the USDA, the average age of principal farm operators is over 58 years old, and many do not have children willing or able to continue the farming tradition.² This leaves farmers in a precarious position, unsure of how to transition out of their roles while preserving their life’s work. So how do you support your clients through this potentially emotional and complex transition?

Start with important documents

There are 3 main documents your clients will want to have in the event of their passing, or if something renders them unable to care for their farm, including:

• Will
• Durable power of attorney
• Medical advance directive

These documents can be essential for clients with no farm family successors.

• A Will directs the disposition of property at the individual’s passing. It’s important to remember specific forms of ownership, beneficiary designations, and contractual arrangements can control the disposition of property, superseding the terms of the Will.
• A durable power of attorney form delegates certain financial and/or legal decision-making authority to another individual even if your client is in good health, with years of retirement ahead of them. It provides the person with the power of attorney the ability to handle the client’s financial affairs if the client has become incapacitated and unable to act on his or her own.
• The medical advance directives, sometimes referred to as a power of attorney for health care, is similar to the durable power of attorney, except it delegates health care decision-making authority to a trusted individual.

An another often used legal document, is a trust. There are numerous types of trusts, but typically they are used to avoid probate and to control property during the grantor’s life and after the grantor has passed away.

Plan the transition

Here are key steps to consider as you guide your clients through their transition:

1. Conduct a comprehensive financial assessment

Begin with a thorough financial assessment of the farm’s assets, liabilities, and overall value. Understanding the financial landscape is essential for making informed decisions about succession planning.

2. Understand the client’s goals and values

Engage in open and empathetic conversations with your clients to understand their goals, values, and concerns. This will help in identifying the most suitable succession plan that aligns with their vision for the farm’s future.

3. Explore legal and tax implications

Different succession options come with varying legal and tax implications. Work with legal and tax advisors to understand the consequences of each option. This includes understanding capital gains taxes, estate taxes, and potential tax benefits associated with conservation easements.

4. Develop a succession plan

Based on the financial assessment and the client’s goals, develop a detailed succession plan. This should outline the chosen option, steps for implementation, and a timeline for the transition to retirement and beyond.

5. Facilitate conversations with stakeholders

Succession planning often involves multiple stakeholders, including family members, employees, and potential buyers. Facilitate these conversations to ensure everyone is on the same page and to address any concerns or conflicts that may arise.

6. Monitor and adjust the plan

Succession planning is not a one-time event but an ongoing process. Regularly review and adjust the plan as needed to ensure it remains aligned with the client’s evolving goals and circumstances.

Explore options outside of selling the farm

There are many plans your clients can utilize as a transition strategy, outside of just selling their farm outright, including:

• Operating the farm on a scaled-back or part-time basis
• Leasing land and other major assets like livestock and machinery
• Hiring a custom farm or ranch operator or a farm management company
• Transitioning to a young/beginning farmer
• Charitable arrangements including charitable gift annuities and charitable trusts that can provide tax advantages, a cash flow back to the donor and a charitable legacy
• Agricultural conservation easements or conservation trusts
• Using a combination of the above strategies

Final thoughts

Helping farmers retire without heirs can be a complex but achievable task. By understanding the unique challenges and exploring various options, financial professionals can guide their clients through a successful transition. Whether through selling, forming cooperatives, partnering with aspiring farmers, or employing conservation easements, there are multiple pathways to ensure the farm’s legacy endures.

Encourage your clients to start planning early, engage in open conversations about their goals, and explore all available options. With thoughtful planning and professional guidance, farmers can transition to retirement with confidence, knowing their life’s work will continue to thrive.