What Is a Farm Succession Plan?
You’ve worked hard to build your farm into a successful business. And leaving the future accomplishments of your hard work to chance isn’t an option. That’s why a farm succession plan is a critical part of passing your farm down to the next generation. With appropriate preparation and planning, you’ll be ready to turn the reins over to your successor, which may be your children or grandchildren, when the times comes.
Definition of Farm Succession Planning
Your farm or ranch is your legacy, and you probably want that legacy to continue when you no longer can run the farm yourself. Farm succession planning is the process of passing on the ownership of your farm to another person — typically to the next generation of your family. Having a succession plan in place makes that transfer as smooth as possible and it’ll help determine the future of your farm.
What to Know about a Farm Succession Plan
Ideally, your farm succession plan will help you reach your financial goals upon retirement, so your plan should include the amount of income you and a spouse will need for your retirement. It’s important to calculate this number to help you determine what obligation the business has for you as a retiree in order for your business to not be adversely affected financially.
The success of a farm succession plan requires a developed, thought-out strategy for the transition. An important decision you’ll make is choosing what to do with your farm. Consider the following for your succession plan:
- Transfer time – determine when and how long this transfer process could actually take and the time to share knowledge and shift responsibilities of managing the farm business.
- Good communication in these arrangements is a vital link in the success of the farming business.
- Farmers commonly transfer or sell ownership to a family member or members. For non-farming heirs, consider leaving them with equal settlements of money, stock or other assets.
- Instead of completely handing over ownership, you can rent or lease your land and equipment.
- You can sell or contract your property to non-family members.
- Carefully liquidate your assets by auctioning equipment, livestock or selling your land.
What Do You Want Out of Your Farm Succession Plan?
The right plan helps protect your farm by ensuring everything you’ve worked for stays in the right hands. It’s far more than a financial arrangement. It’s a roadmap for growth and security. But the right plan takes time to develop. It’s a process that’s unique to every farmer and every family. And it all starts with honest communication and trust.
Ask yourself these questions to help you determine what you want to get out of the plan.
- Do I want the farm to stay in the family?
- If the family member is taking over the operation, am I confident they have the knowledge and skills to keep it running?
- Do I want the farm to remain operational after the transition?
- Do I want to stay involved in business decisions regarding the farm after the transition?
- What kind of income will I need for retirement and health care costs?
Open communication is key for an effective succession plan. Thinking about these questions will help you have a better understanding of what you want, so you can clearly talk through your concerns and expectations with your family or people involved to help prevent misunderstandings.
Maintaining your farm is an intricate operation, and transferring ownership isn’t quite as easy as handing over a set of keys. When it comes time for your successor to take over, you’ll want to have these important details figured out.
Land. Now that you know who you are transferring ownership to, how will you do it? Will you be gifting your land to your family members or selling it? Transferring ownership upon death is also a common option because you’ll still be able to use your property and earn income from it throughout your retirement years.
Equipment. Are you going to sell your equipment to your successor or transfer ownership to them? You can also choose to lease your machinery to your successor, but make sure to agree upon who will pay for repairs.
Breeding livestock. Transferring your livestock can also be done in a number of ways. If you have breeding livestock, you can choose to sell all or a portion of your herd with payments made in installments. Or, go the roll-over route, where you’ll still own the breeding herd and share joint ownership of the offspring with your successor.
Feed and market livestock. You can choose to sell or give your feed and market livestock to your successor. If you go this route, make sure you’re doing so at the low point of the feed inventory or between the sale and replacement of the market livestock. You can also choose to have your livestock inventoried, meaning you’ll receive the inventory value of the livestock upon its sale, and you’ll divide the remaining proceeds between you and your successor.
Before making any definitive decisions, be sure to consult with a tax professional to understand the tax implications of your transfers.
Strategically planning the succession of your farm takes time — and the right guidance. Actively involve your lawyer, accountant, financial planner and your American Family Insurance agent to help you build a successful farm succession plan. Though your family will probably be heavily involved with the decisions, having unbiased perspectives can help neutralize conflicts that may arise.
In creating a farm succession plan, you’re able to implement your family’s vision and intentions with purpose. You want to ensure that your farm continues operating with adequate economic capabilities to financially support multiple generations for years to come. Ready to protect the future of your farm? Use these seven steps to build a plan you can feel good about.
Related Topics: Farm Succession Plan