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Farm Succession Planning: Securing Your Agribusiness Future
Farm succession planning requires communication and realistic expectations. Ensure a smooth transition with this farm succession planning guide.
Grandparents and grandchildren walking towards the crops, gearing up for farm succession planning.
Gear Up for Farm Succession Planning
Farmers are proud, hard-working people who are stewards of their land. They want to make sure their farmland is taken care of into the future because, in many cases, the land and farming operation has taken care of several generations of their family. Farm succession planning and transferring a farm to the next generation is a very emotional time. There’s a special pride of ownership that goes into farming, and farmers want to see the same farm stewardship from their family when they take over.
There are two main ways a farmer can pass their farm along to the next generation. They can transfer ownership by gifting or deeding the farmland, the equipment and any other assets. Or they can determine a market value for the farm’s assets and sell the farm to the family member.
One of the biggest challenges farmers face when transferring their farm is making sure that the family members who are not going to be involved in the ownership or operation of the farm are treated fairly.
With clear communication, following a farm succession planning guide and a little help from an experienced agriculture banker, a farmer can ensure a smooth transition process so their farm can succeed for future generations.
Family Farm Succession Planning Guide
1. Communication is key for a family business
Communication with your family and business partners before, during and after the transfer or sale process is paramount during farm succession planning. In some cases, farmers are transferring ownership of the farm to multiple family members who will manage the farm together. It’s important to include the following partners during this process so that the agreement is effectively communicated:
Your attorneys: so they can draw up the agreement properly.
Your accountant: so you can take advantage of any tax benefits that are available.
Your bank: to secure the financing of the property and help get you favorable terms.
Involving these business partners is especially important if the family member receiving the farm have not been involved in the day-to-day operations and will need help managing the farm.
2. Set realistic expectations during the farm transition planning
It’s important for everyone involved to have realistic expectations of how the transfer and the succession plan will work. Failing to plan for every aspect of the transaction is one of the greatest pitfalls farmers run into during the transfer process. Agricultural succession planning should begin two to five years before the transition to get everyone’s expectations in place.
In many cases, someone may feel challenged by the transfer of ownership and could feel they are being slighted by the deal. Often this is a family member who is not going to be involved in the future farming operation.
Communication is key to setting clear and concise expectations with the entire family so that everyone is treated fairly as you transfer ownership to the next generation.
3. Identify what everyone’s role will be after the farm transfer
Have the parents considered what their roles will be after they have transferred ownership of the family farm?
In some cases, parents may choose to move off the farm and not have any involvement going forward. The family members who have taken over, on the other hand, may still be expecting one or both parents to drive the combine during harvest or help out in other ways.
On the flip side, the parents may still want to be involved in the vital decisions regarding day-to-day operations, such as deciding when planting and harvest will begin or setting prices for livestock or crops. If the new owner and operator of the farm was planning to make these decisions, this may lead to hurt feelings or stress within a family.
Making sure everyone understands their roles ahead of time can help farm families avoid these issues during and after the transition.
Find a Trusted Advisor for Farm Succession Planning
When it comes to farm succession planning, it’s important to build a close relationship with an Ag banker. Ag bankers play a key role discussing the financial implications, including their cashflow and establishing a farm management record-keeping system, to make sure they have ample income to service the debt they will incur during the transition.
Many of the ag bankers at Northwest Bank grew up on a farm, and along with their financial expertise they have personal experience with the joys and challenges of farming and want to help future generations succeed.
Visit us online to learn more about our agriculture banking services and succession planning resources, or click here to learn more about our Ag bankers.