Farming involves a lot of tough decisions and specialized knowledge. Farmers have to know when to hurry to the field in the middle of the night because a big storm is coming at 6:00 am and the whole chemical application schedule will be thrown off by missing these next 12 hours. Or when to market their livestock or commodities. Or how best to prepare the fields, prevent animal diseases, haul grain, or protect growing livestock. With all these decisions to make on a daily basis, it’s no wonder that many farmers put off planning for the future.
Of course you know, though, that a plan is essential, especially when it comes to farm succession planning. Questions of fairness are personal and difficult to discuss in a family business. These are the kinds of questions your lawyer will prompt you to consider when you start making your plans.
I recently ran across an excellent summary of how to start thinking about farm succession planning: Succession Planning and the Family Farm. The authors make some excellent points:
- According to the USDA, approximately 96 percent of the 2.2 million farms are classified as “family farms. The average age of a farm operator is 57 and the fastest growing segment is those over age 65. These ages suggest the need for planning for transitioning due to death, disability or retirement.
- At time of transition, two options (1) maintain the operation while transitioning ownership to a son or daughter; or (2) shut down the farming operation and sell or lease the land. Most would prefer to transition to family. To make this transition more successful, farmers should identify and train potential successors early and determine
what they will need to know and do to qualify as a successor. Although farmers would prefer to retire when they choose, the plan should include all scenarios and consider the financial needs for both the farm operation and the succeeding children in each scenario. Some options would include lifetime purchase, an inheritance, a purchase from the estate, or a long term lease. Financial needs might include financing from a bank, parent financing, disability and/or life insurance. Starting early will increase the liklihood of insurability and affordability.
- Dividing the farm among all children is not always the best idea. It might be better to gift other money or items to non-farming children. Life insurance can benefit your planning by providing a source of funds to for non-farming children to inherit.
- Start talking to your children early about what the plan is and make sure everyone is in agreement. Revise the plan when necessary and continue to communicate.
- Your attorney, accountant, financial planner and insurance professional should all be involved in the planning. In addition a business coach or planner can be helpful in this process. The failure to plan can cause financial problems for all involved and can even result in forced sale of land to pay for taxes or other debt, proper planning will allow the farm to endure while caring for the needs of both generations.
The whole article is worth a read. And if you haven’t done any succession planning yet, please do so now, whether you are retired, nearing retirement or in the middle of your farming years, there is no better time than now. The sooner you begin your planning, the more options you will have to successfully transition your farm.