Few farmers and ranchers enjoy talking about or planning a farm ownership transition. However, due to the COVID-19 pandemic, many have accelerated discussions around farm transition or succession planning.
During this uncertain time, farm and ranch owners need to make sure they have concrete transition plans in place, especially in the event of a COVID-19 infection that can render a stakeholder unable to make important management decisions. Such an infection can happen quickly—so it’s crucial to plan ahead.
Plan for a transition that may happen faster than anticipated
Planning conversations should happen now to ensure your farm’s financial house is in order in case the virus creates the need for an abrupt transition. That’s especially true if it’s a farm family succession.
"The transition of a business to the next generation generally begins with the gradual transfer of labor and income. That’s followed by handing over management responsibilities. The transfer of assets and land is the last step," said Nationwide Retirement Institute® consultant, Ryan Patton, JD, MBA. "The family element can make it more complicated than just pure economic considerations.”
Beyond the transfer of management responsibilities, a strong farm transition or succession plan accounts for overall financial standing. That includes all parties’ cash flow needs and how to best set up the successor to thrive in the long term. Land and machinery are big parts of that transition plan.
Choose the right transition strategy
Take the financial needs of both predecessor and successor into account when determining the best way to transfer those big-ticket assets. There are different strategies for transferring ownership of assets like land and machinery. Each has its own specific implications to cash flow and financial standing, both during and after the transition.
"The goal should not be to make everything exactly equal but rather equitable or fair to the family as a whole,” Patton said.
There are multiple ways to transfer assets like farm machinery. Each has a unique initial financial burden for the successor. Check with your farm’s financial professional and/or legal counsel to determine which will be your best strategy among options like these:
- Asset gift
- Asset sale/gift
- Gradual sale
- Installment sale
- Lease with purchase option
Know your farmland transfer options
Just like machinery and equipment, how land is transferred can have considerable financial implications for both predecessor and successor. Consider these options and consult your farm’s financial and legal team to determine which is best:
- Reserving a life estate
- Transfer by combined sale/gift
- Transfer by contract
- Transfer by co-ownership/tenancy in common
- Transfer by gift
- Transfer by will
Be prepared to make tough decisions
Try to let your farm speak and consider who it would want to carry the torch in the years ahead. In your decision making, be prepared that in doing what’s best for your operation, you may not make everyone happy. Though it’s a tough conversation to have—especially with family members—farm owners and stakeholders should carefully consider their successors.
“It may be wise to consider the personal side as farm stakeholders seek to preserve their family legacy,” Patton said. “Recognizing this, the senior generation who owns the operation and the land is likely to have to make certain sacrifices or contributions to help the successor get started. Whether retaining business debts, devoting your time in mentorship or stepping back from key business decisions you used to make, a successful transition involves different levels of commitments for each farm family.”
A team approach
Transition planning is a complex task. Tax, legal, family and financial considerations are just a few items that go into a successful transition plan. Nationwide recognizes these complexities and has a dedicated team to help walk your family through this challenging planning process.
Nationwide’s Land As Your Legacy® program is comprised of highly skilled attorneys, CPAs and financial professionals who put you and your farm in the center of every decision. At no cost to you, the Land As Your Legacy team will help ensure you are fully aware of options you can take to accomplish your goals and objectives.