“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.”
A big issue for those who work on the land, is preparing to transition the family farm or ranch to the next generation.
High Plains Journal’s recent article, “Don't be a failed family-business statistic: Plan for your farm's future,” explains that deciding the future of your farm or ranch is one of the toughest tasks in agriculture. Decades of hard work and valuable assets are at risk. The statistics for family businesses also don’t look too good, with only 30% of family-owned businesses making it into the second generation.
Numbers aside, you can protect your business and guarantee a positive transition with a smart, long-term strategy that includes a succession plan and careful estate planning.
A succession plan is a forward-looking and comprehensive strategy that prepares you and your family for a transfer of ownership and leadership to lessen the chance of family squabbles. It provides for the transition and for maintaining your lifestyle in a tax-efficient matter. With a succession plan, you can develop a path to ownership of a thriving business for your children and beyond.
Estate planning gives you the tools to implement your succession plan, but it can be complicated. It requires legal documents, business evaluation, and tax planning. There also can be questions of income deferral, gifting, charitable donations and the use of trusts. Because of the complexity involved in succession and estate planning, you must work with an experienced attorney who is knowledgeable about the challenges of estate and succession planning for agriculture. They will provide the necessary assistance, objectivity, and counsel for dealing with sensitive and challenging situations.
Let’s look at three critical areas where expert guidance is especially important:
- Consider the needs of on-farm and off-farm heirs. A major issue in succession planning is addressing the situation where one of your children remains on the farm, while the others move to jobs elsewhere. An estate planning attorney will help you decide what’s fair and what’s equal in your treatment of your children. They can discuss ownership structures that clearly define the roles and expectations for both on-farm and off-farm heirs, while protecting your most valuable assets.
- Planning a smooth financial transition. You want to decrease tax liability and maximize benefits, because estate taxes require payment in cash. Don’t jeopardize the investment you’ve worked on, by failing to plan ahead.
- Examining the financial needs of the current and next generations. If grandparents, children, and grandchildren are all deriving income from the farming operation, a succession plan can set out their individual needs.
Farms and ranches that survive from one generation to the next don’t happen by luck. Even if you already have a will or trust but haven’t updated it in years, you should review it with a qualified estate planning attorney, because success comes from a family’s clear goal for the future and a sound succession plan.
Reference: High Plains Journal (November 8, 2019) “Don't be a failed family-business statistic: Plan for your farm's future”