What Is The Future Of Your Farm Ownership?
You’ve probably got several New Year’s Resolutions – but we can bet that “develop a farm succession plan” isn’t one of them! Succession planning may not be the most exciting thing your family has ever done together, but it may be one of the most important. Do you family and your farm a favor - start the farm transition process soon!
This article covers 4 questions:
Why do we need a succession plan?
Where should we start?
Why does having our ultimate goal matter?
We have a goal. What now?
WHY DO WE NEED A SUCCESSION PLAN?
The only times you may have thought seriously about transition planning is when someone you know passes away and you see the negative impacts on that person’s family or business. You may have even said “I won’t let that happen to my family.” You promise yourself you’ll start planning for the future – then you get home and cow #37 is out or the loader is leaking hydraulic oil, and any thoughts of transition planning go out the window. It’ll all work itself out, RIGHT?
WRONG – not making a transition plan pretty much guarantees that things will not turn out the way you want – or anyone else in your family.
You want to know the most complicated part of transition planning? Talking to your family. Family communication – open, honest discussion about everyone’s goals and concerns – is your #1 hurdle.
So before you even think about tackling the lawyers, accountants, LLC’s and estate taxes, sit down with the family and talk. You be the person that says “Let’s have a family meeting to discuss our future.”
WHERE SHOULD WE START?
How about: “What are our future goals for the farm?” There are two main goals to discuss – or that may come up from the folks around the table.
Do we keep the farm in the family? This option typically means the goal of the family is to maintain ownership of the farm – either by actively farming the land or renting it out to others. Often a main driver of this decision is sentimental; the pride in ownership of “family land” or keeping it for grandkids to “go out to the farm” for visits.
Do we keep the family in farming? This option tries to keep the family in production agriculture. This could either mean keeping the existing farm in production or potentially selling the existing land in order to purchase another farm with better resources (soil, water, agriculture services, etc). For families that have this goal, the decisions they make for transition are not emotionally tied, and more focused on “equitable” treatment of the land rather “equal” amongst family members. This conversation can be a difficult one – but important to make sure the farmers in the family can continue to farm.
WHY DOES HAVING OUR ULTIMATE GOAL IN MIND MATTER?
There are a few things that can happen if your family is not on the same page with the ultimate goal.
You could chain the family to the farm. Unfortunately, the transition plan (or lack of) can force someone in the family to remain on the farm – regardless of if it’s profitable OR if they actually want to be part of the family farm. While that may not be intentional, it can easily happen. So open communication from everyone in the family – and an objective view – is critical!
You could actually keep the family from farming. This situation usually comes up because the older generation wants to treat their children or grandchildren “equally.” Understandably – to avoid the appearance of favoritism – many parents will leave equal share of the estate (including the farm) to each child. However, this method usually leads to family arguments over the future of the farm once the transition occurs. A farm with different owners that have different goals can mean that the family members that want to farm no longer have the ability to. You have likely seen this happen. There is a huge difference between treating your heirs “equally” versus “equitably.”
You may have to sell the farm. This scenario can happen after the older generation passes if everyone is not on the same page and a plan not in place. There is a difference between a “good sale” and a “bad sale.” A “good sale” happens because it is the best course of action for the family and meets everyone’s goals. A “bad sale” happens when the farm must be sold against the will of at least one family member. Unfortunately, “bad sales” are often the result of the above 2 scenarios.
WE HAVE A GOAL. WHAT NOW?
Congratulations on actually talking with your family! Now there are 5 pretty simple things to do.
Decide to take action. You really just have to start. The earlier the better – after all, we never know what tomorrow may bring. If you wait until someone passes away, you have lost the opportunity to make thoughtful planning decisions.
Find a guide for the process. While no one knows everything about the process, someone who has done this before can be your best guide. This could be a lawyer, financial planner, etc. Legal and tax issues are much more expensive to clean up than the cost to develop a good plan ahead of time.
Set a timeline. When you start the planning process early, you will find that the transition doesn’t happen overnight. What pieces need to happen at which points?
Put it in writing. Putting your plan in writing makes it important to everyone involved and also helps minimize arguments caused by “selective memory.” It will keep everyone on the same page and help you keep track of plans and decisions accurately.
Accept it - transition planning is an on-going process. This is not a “one and done” item. You will need to revisit the plans every few years as family changes, goals change, or the economy changes. The edits each time are much easier than starting from scratch!
If you would like to read more information about factors to consider in your Farm Succession Plan, the Farm Bureau Financial Services offers a Complete Guide to Farm Succession Planning that can take you more in-depth.
Transition planning may not be the most exciting thing your family has ever done together, but it may be one of the most important. Your relationships matter, and so does your farm. Do both a favor – start the farm transition process soon!
If you’re interested in buying land in South Carolina or Georgia, one of our local loan officers would be more than happy to help. Find an AgSouth Branch near you!
Not in South Carolina or Georgia? Find your Farm Credit Association.
*This article was written with contributions from MidAtlantic Farm Credit and Dr. Alex White, Professor of Dairy Science at Virginia Tech.