Planning for your farm’s future has never been more urgent. With one-third of United States farmers older than age 65, it’s estimated that 70% of farmland will change hands in the next 15 years.
Are you or your parents prepared to transition your family farm or ranch to the next generation? Have you figured out who’ll take over? How you’ll handle siblings or children fairly? How you’ll minimize tax exposure?
Deciding the future of your farm or ranch is one of the most daunting tasks in agriculture. Decades of hard work and valuable assets are at stake. And the statistics for family businesses don’t bode well: Just 30% of family-owned businesses survive into the second generation. Further, family businesses are often rife with conflicting emotions, complicating the transfer of property and assets.
Yet you can protect your business and ensure a positive transition with a smart, long-term strategy. That means creating a succession plan and carrying it out through estate planning.
It means working with an attorney, accountant, banker and other experienced business professionals to make sure your succession and estate planning achieve your goals.
Defining succession and estate planning
A succession plan is a forward-looking and comprehensive strategy that prepares you and your family for a change in ownership and leadership in a way that avoids family disputes. It provides for transition as well as maintaining your lifestyle, in the most tax-efficient matter. Through your succession plan, you’ll develop a path to ownership of a thriving business for the next generation.
Estate planning provides the mechanics to implement your succession plan. This can be complicated. It requires legal documents, business evaluation and tax planning. It includes income deferral, gifting, charitable donations and, often, the use of trusts.
Because of the complexity involved in succession and estate planning, it’s essential that you work with experienced professionals who are familiar with the challenges of estate and succession planning for agriculture. They will provide the necessary assistance, objectivity and guidance for dealing with sensitive and challenging situations.
Where help is needed most
Here are three key areas where expert guidance is especially critical:
1. Balancing the needs of on-farm and off-farm heirs. This is the biggest challenge I see in succession planning. What happens when one of your children remains on the farm while the others move to jobs elsewhere? An expert in succession planning will help you determine what’s fair and what’s equal in your treatment of your children. They’ll help you focus on ownership structures that clearly define the roles and expectations for both on- and off-farm heirs while protecting your most valuable assets, which typically means your land; determining the roles of management and the expectation of performance for the family. This covers who’s involved in the day-to-day operations of crops, marketing, cash flow and more; and identifying the family values and wealth, separate from the business. This encompasses the legacy of the family.
2. Making certain you experience a smooth financial transition. Your goal should be to lessen tax liability and maximize benefits. Estate taxes require payment in cash. Do you really want to face a situation where you must sell part of the legacy to pay taxes? Ending up with a huge farm-transition tax bill is a prime example of a poor or non-existent succession plan.
3. Determining the financial needs of the current and next generations. If grandparents, children and grandchildren are all pulling income from the farming operation, a succession plan can identify their individual needs.
Farms and ranches that survive from one generation to the next don’t happen by accident. Even if you already have a will or trust but haven’t updated it in five years, it’s time to take another look at it. You need to make sure your assets and beneficiaries are current. Success comes from a family’s clear goal for the future and a well-thought-out succession plan.
Editor’s note: Maxson Irsik, a certified public accountant, advises owners of professionally managed agribusinesses and family-owned ranches on ways to achieve their goals. Whether an owner’s goal is to expand and grow the business, discover and leverage core competencies, or protect the current owners’ legacy through careful structuring and estate planning, Max applies his experience working on and running his own family’s farm to find innovative ways to make it a reality. Contact him at email@example.com.