Creating A Farm Succession Plan
Creating a Farm Succession Plan
It is important for farmers and ranchers to create comprehensive succession plans, however many family farmers who plan to retire do not have a farm succession plan in place. Farm owners must start sooner rather than later to ensure a plan that benefits their goals and the desires of their family.
What Is Farm Succession Planning?
Farm succession planning is the process of turning over your family farm or ranch to the next generation. When it comes time to transfer your farm, you want a succession plan that fully considers the land, equipment, livestock, equity, and your retirement. An effective farm succession plan starts with determining what you want for your legacy. The process of putting a plan into action to ensure smooth transition to the next generation can be a gradual process, which is why your preparations should start as soon as possible.
Who Should I Include in My Succession Plan?
If you have more than one heir, it is vital to consider how increasing the number of heirs may affect your farm succession plan. Your heirs may be divided between farmers and non-farmers—adding to the common challenges of farm transition planning.
Open conversations with your heirs regarding their plans for future involvement in the farm will help determine how involved they should be in the future of your farm or ranch.
Farm Transfer Planning for a Single Heir
Farm succession planning involves less risk and fewer challenges with only one heir. You can provide consistent guidance to a single family member and gradually pass tasks over as you age. When it comes time to retire, you will feel more confident in your heir's passion and preparedness to fill your shoes.
While this process is more straightforward, other family members may still argue for a stake in the farm's future. Have a will established to ensure a smooth farm transfer from you to your chosen heir. Successful farm transition and estate planning should set you up for a peaceful retirement knowing your legacy is left in capable hands.
Farm Transition With Multiple Heirs
Farm transfer becomes more complicated with multiple heirs, even ones you believe can work well together. Communicate early and frequently with all family members who have a stake in the farm's future. While your goals should come first, you must also understand your family's expectations. Your goals can only be achieved if you can incorporate the needs of future generations as well.
You'll want to consult with a trusted farm transition advisor to ensure your business structure is viable for your goals.
Common Challenges in Farm Succession Planning
Farm transition and estate planning is essential, but often comes with challenges. Here are some common challenges you can overcome with the help of a trusted professional advisor.
1. There Is a Mix of Farming and Non-farming Heirs
The succession plan becomes even more complex when you have a combination of on-farm and off-farm heirs.
If a family’s goal is to ensure transition of the farm to the next generation, taking steps in an estate plan and succession plan to keep the farm and its assets together, including equipment, livestock, and land, is ideal, and leaving non-farm assets such as retirement accounts, life insurance, or non-farm real estate to heirs who are not on the farm.
Other options include structuring your farm succession plan so each heir receives a portion of the land. You may stipulate that your farming heir has a set number of years to purchase the land from everyone else before any other sales are made. However, each split will further risk the farmland being sold outside of the family.
2. The Family Has Conflicting Desires About Who Should Take Over
Sometimes several heirs will want to farm the land. Other times, the heir who wants to take over the family business will not be in a financial position to purchase the land from the others.
It is essential to discuss your plans with your family members before you retire. If you want the farm to remain within your family, you need to address these conflicting desires about who should take over the farm. Before you give your heirs free rein over their portion of the land, consider whether there is another farm succession plan that is more likely to achieve your goals.
3. Every Family Is Unique, Just Like Every Farm Succession Plan
No two farm succession plans will look alike. Anyone can learn the mechanics of land transfer, but the challenges you will need help with are often unique to your family's expectations. Before delving into the numbers, you need to decide what you want to achieve. How do you want your legacy to be maintained for the future?
Farmers and ranchers can benefit significantly from working with a team of succession planning professionals who can offer guidance based on your unique family circumstances.
How to Successfully Prepare a Farm Transfer in Iowa
Work with trusted professional advisors to help you create an effective farm transition plan. An experienced attorney can help determine the root causes of legal issues and deliver potential options for resolution.
To guide you through the planning process, your attorney will need:
- Individual information of all family members.
- Knowledge of family dynamics and potential conflicts.
- Details of the farming operation and key decision-makers.
- Documentation of financials, lending, and insurance.
- Copies of any pre-established wills and trusts.
- Balance sheets of your farm's net worth and debt owed.
- Lists of your personal, farm, and non-farm assets
Trust Whitfield & Eddy, P.L.C. for Farm Transition and Estate Planning
Our trusted professional advisors regularly work with farmers and ranchers and can walk you through the succession planning process. You can trust us to deliver valued advice and services for planning, estate, and trust needs.
For more information contact Ashley Charnetski at 515-288-6041. Contact the attorneys at Whitfield & Eddy Law for help in creating a comprehensive farm succession plan.