According to the Department of Agriculture, family farms account for 98 percent of all the farms in the U.S. and for about 85 percent of the agricultural output. It’s estimated that 70 percent of the nation’s farmland will change hands in the next two decades. Yet, many farmers have an insufficient or no plan concerning succession. Without a succession plan, these family farms risk going out of business.
“Less than half of farms actually have a plan and, for the most part, this plan is some sort of estate plan or will,” said Bryce Knorr, senior editor for Farm Futures magazine in a High Plains Journal article. “But it’s not really something for making sure that the farm continues as an entity. You have to take the next step to really develop a plan for transitioning the business.”
Lee Watson, a corn, soybean and wheat farmer in Bellevue, Ohio, plans for his son, Dusten, to take over the family farm in the future and is working with an estate attorney and an accountant on a plan to do so.
“I’m in the process of transferring shares of the farm to him,” said Watson in USA Today. “It’s important to do for inheritance tax purposes. It can be a large amount of debt for a person to start out with on their own. I’ve always worked for this. I’d like to see that land and the operation stay within the family.”
Are you developing a succession plan for your family farm? Here are recommendations from AgWeb.com about how to navigate common succession pitfalls.
- Take action: The biggest mistake farmers make is not taking the first step. Begin the planning process by holding a family meeting with a clear agenda and goals that are defined before the meeting. The purpose of the meeting is to create a preliminary plan.
- Consider your options: There is no one-size-fits-all option when it comes to handing down a farm and farmers need to weigh all their options. Determining the best business model for the operation is a crucial first step. For example, an LLC or limited partnership allows the elder generation to maintain management in the farming operation while gradually transferring ownership and responsibilities.
- Don’t worry about offending family members: Succession planning is an incredibly emotional issue and it’s not uncommon for families to avoid confrontation to keep the peace. This could lead to unqualified or disengaged children running the farm. Honest and open communication is vital to determining the best succession plan and the roles family members will play.
- Don’t let your plan gather dust: Reality check your plan to make sure it works off the paper by playing out hypothetical scenarios. Also, review your plan annually to make sure it’s up to date and relevant. Share it with a succession-planning professional or lawyer for a second opinion.
Photo obtained from: www.familyfarmsgroup.com