Top Tips to Consider for the Future of Your Family Farm
By: Kaitlin DeCrescente
A family farm is a business. But, when it's time to pass the torch, we often treat the transfer differently than we would, say, a family restaurant. With over 70% of the nation's farms set to change hands in the next 15 years, it's essential for farm families to ensure a sound plan is in place.
1. Treat it Like a Business
Although a family farm is no doubt a sentimental place that may have been in the family for generations, it's also someone's livelihood. If a family member is willing to take over operations of the farm, they need to have inside knowledge of the operation. Think of it this way: If you owned a restaurant and your child worked there growing up, you wouldn't expect him or her to take over the entire restaurant without some training. Likewise, if you want to set up the farm to thrive for generations to come, your successor needs to be involved in the financial, record-keeping, and general decision-making aspects of the operation. This can be difficult in a family dynamic, where members of the younger generation might inherently feel their role is "child/grandchild" rather than "business partner." Still, once the decision is made that an heir will be taking over, for the success of the farm, his or her role has to essentially be that of a senior vice president of the business.
2. "Fair" doesn't always mean "equal"
The default plan for many farm families is to transfer ownership of the farmland to the next generation in equal shares. This outwardly seems to be the fair option. After all, why wouldn't each child get a share in the property that's been in the family for years? However, if the farm is operated solely by one of the heirs, it might not make sense for the non-farming heirs to inherit a share of the farmland. Such a transfer can have the effect of essentially forcing a partnership on the next generation. If you do want both farming and non-farming heirs to have a share in the land, it's a good idea to have a plan in place for sharing profits and losses of the farming operation to ensure that "equal" IS fair.
3. Get it in writing
You may have a silent agreement as to who will operate the farm in the future, but there are too many details to leave your plan unwritten. Who will have record title to the land itself? How will title be held? What about the machinery and equipment? When will the actual transfer take place? Does your current estate plan reflect all of these wishes? Don't leave the next generation to guess about the answers to these questions. Several farming seasons could pass before these issues are all fully resolved if legal action is required.
4. Failing to plan is planning to fail
"My kids all get along. They can agree on who gets what once I'm gone." Unfortunately, these are famous last words in estate planning. It may feel morbid to discuss what will happen when you figuratively "buy the farm." However, ignoring the topic is only likely to create discord and conflict among remaining family members. Generally, the last thing anyone wants is for family relationships to fall apart due to fights over an estate. Yet this frequently happens in situations where parents fail to plan. When you throw a family farm into the mix, the situation only worsens. The odds are slim that the farm will continue to operate successfully in the midst of a bitter estate dispute.
5. Don't be overwhelmed!
The process of planning can seem daunting. It's not something that can be completed in an afternoon. It may need to be dynamic as time passes. There are several resources to help guide you in the right direction for you and your family. University extension offices nationwide offer succession planning assistance. Likewise, insurance companies, accountants, and attorneys may also offer guidance. The International Farm Transition Network has put on workshops nationwide training a wide array of individuals in all fields as certified farm succession coordinators. Additional resources will likely continue to become available as farm families and the professionals who support them continue to recognize the increasing need for assistance in the farm transition process.
This article is only intended to provide general information and does in any way constitute legal advice. Please contact your legal professional to assist you in these matters.