Your farm is not only your legacy — it’s your life and passion, and passing it along properly to heirs and loved ones helps ensure your hard work continues to provide for generations to come.
Farm succession planning is important because it plays a key role in securing your legacy. It’s a detailed, sometimes emotional process, but when the right people are involved and the right conversations take place, it can be a positive experience that strengthens relationships and protects dreams.
It’s never too early to start your succession plan, and a strong grain marketing plan can lead you to the solid ground you need to pass on your farm to forthcoming generation or owners. This ensures your future is prosperous and your operation is in good hands.
Here’s how you can plan for success for years and years to come.
The Succession Plan Checklist
Determine what your goals are for succession planning
It starts with setting goals. Think about how you want to live in retirement and how much you need in the bank account to do so, then build your plan around that. This first step should take place well before you’re ready to move on from your farm business. That way, you’ll have enough time to achieve your goals.
Just like retirement, you may have a number in mind that you’d like your farm to be worth or that you’d like to have saved. In order to reach that goal, you’ll need to set smaller milestones and make a yearly plan. For big goals like this, it can be very helpful to work with an unbiased professional to make a plan, or use a planning tool. FarmLink’s grain marketing advisors have local knowledge and are backed by over 20 years of data, while GrainFox, the smart grain marketing tool, can help you make informed decisions about selling your grain right now.
You’ll also want to consider how much you want to be involved in the operations as you get closer to retirement. You may start letting your successors manage the land, purchase farm equipment, and take on more responsibilities. This lets you ease into retirement, while teaching the next generation what it looks like to be the person in charge.
If your home has significant meaning to you and your family, you may want to keep it in the family. Or perhaps you’d like to sell your land and home together. The bottom line here is you must determine what you want for your future. Take your time and talk this step out with loved ones as well as professionals because it guides every step that follows.
Determine who to include in your farm succession plan
This can be extremely difficult, but it’s your job to make sure your farm will be managed properly, so it continues to thrive for future generations.
A single heir
When it comes to family farm succession planning, this is the most straightforward case. When you only have one heir, you don’t have to worry about feuding amongst family members and there’s less at risk overall.
As you get older, make sure you’re giving your successor advice and more responsibilities – callit a test drive. The last thing you want is for your legacy to be passed down to someone who isn’t capable of carrying it on properly. It’s also important to have an up-to-date will ready.
The more heirs you have, the more complex things get.
Clear and constant communication is always the right strategy. You may have a child who loved farm work when they were younger but may want to take a different path in life now that they’re an adult. Communicating early and often can help you understand the expectations of your heirs and build a succession plan that works for everyone.
If you have more than one or two successors, you’ll want to work even more closely with a third-party advisor to ensure you leave the most viable business structure in place. The more people involved in future management, the more likely it is that your farm will be managed in ways you hadn’t intended.
After careful consideration, you might conclude that a non-family member — perhaps a current employee or someone who knows the business and is committed — is best to take your business forward.
You should be able to trust that the individual has the knowledge required to successfully maintain your operation. They will require the appropriate leadership abilities and attitude to encourage and manage individuals inside your farm business, in addition to a deep understanding of the farming business overall. Both parties need to communicate as if you’ve been working together for years.
Consider assets during farm succession planning
How successful the transition is to the next generation relies on what your assets are and how they are handled. Here’s what to consider as you review your current assets:
Farm equipment may be handled in a variety of ways. When machinery is exchanged, it can be sold outright or in installments, and ownership can be transferred. Always contact your tax professional about each choice because both have different tax ramifications.
Giving machinery as a gift may reduce the hit you or your successor takes in income tax, but it may also trigger a gift tax. You can also lease machines to your successor, but you’ll need to figure out who will pay for maintenance ahead of time.
When creating a farm succession plan, consider how you want to transfer ownership of your land. Land can be transferred during your lifetime by sale or gift or upon your death. Sales may take place through cash or installments.
Transferring land upon death is the most common approach because it allows you to use the property and receive income from it through retirement. Tax laws vary regarding inheritance.
If you have multiple successors, your farm may be divided equally among each of them, but while this strategy may be effective, it is a popular misconception that it is the only and best way to prepare for the future of your farm.
In reality, this is the riskiest choice, since it might result in a splintered farm and lower the land’s total worth. A 200-acre farm may generate a lot of revenue, but dividing it five ways leaves each successor just 40 acres of cropland, limiting overall productivity by diminishing the outright value. This could sway the non-farming successors to sell the property, which means it will no longer be in your family’s possession.
No matter what your situation is, it’s best to work with a team of farm succession planning professionals to ensure that your plan is effective. This team consists of your insurance agent, lawyer, financial planner, and a certified accountant (CPA).
Once you’ve landed on who you’re passing the farm to and how your assets will be divided, you’ll need to consider the monetary aspects of your farm business. Here’s a breakdown of the general steps you need to take when considering financials:
- Make a list of assets
- Make a list of debts
- Gather existing insurance and tax documents
- Agree on a timeline
- Take action
The financial performance of the farm can be compared to industry benchmarks to establish its present financial status and profitability. Develop anticipated cash flow and income statements as well to evaluate the company’s future financial prognosis and sustainability.
The more information you can pass on to the next owners, the more comfortable the transition will be. And in any event, an advisor can point you in the right direction.
Your guiding light
The key to succession planning is setting clear goals and planning ahead. The goals you set now will ultimately determine what you will be passing on to loved ones or selling to an external party. It’s never too early to start planning and to communicate with your loved ones, business partners, and unbiased advisors.
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