Your farm is a legacy you’ve worked hard to build over the years. But with one-third of United States farmers older than age 65, it’s estimated that 70% of farmland will change hands in the next 15 years, according to American Farmland Trust. As with all farming operations, it’s essential to have a solid plan for your farm’s future before you retire. Your decades of hard work and valuable assets are at stake, so you want to ensure your legacy is successfully passed along to the next generation or another successor.
Succession planning involves creating an arrangement for a smooth transition to whoever is taking over your farming operation, including financial considerations. Follow these six succession planning steps to ensure your farm can live on for future generations.
1. Detail Your Plans Now
Whether retirement is on the horizon or a decade away, the earlier you start your farm succession plan, the more time you give yourself to make smart decisions and include the right people. A great first step is to ask yourself these financial questions:
- What is my farm worth?
- What would I like to see happen to my farm in the next five, 10 or 15 years?
- Do members of my family understand the farm finances?
- Are my financial records and processes organized and up to date?
- What type of income do I want to receive for retirement or other endeavors?
- Are there tax implications to transferring ownership of my farm?
Succession planning is also an emotional process. It’s important to think about:
- Am I ready for a change?
- What type of retirement do I want?
- What do I want the future of my farm to look like?
- Do I want to stay involved in the operations of the farm?
- How important is it to me that the farm stays in the family?
2. Determine Your Successor(s)
It’s important to determine whom you want to purchase your farm. Is your son, daughter, or other family members, like cousins, interested in taking over the farm? If your family doesn’t want to carry on the legacy and you don’t have a clear successor, you may have a neighbor or another farmer interested in taking over your farm.
3. Talk to Your Financial and Legal Team
Since farm succession planning is so complex, make sure you have the right people involved in the process, including your accountant, attorney and financial advisor. Your attorney can draw up your agreement, your accountant can assist with any tax preparations and your bank can help secure financing. A common mistake farmers make is not involving their financial and legal team from the start, which can make the process more difficult.
4. Sit Down With Your Family
The foundation of any effective farm succession plan is open and honest communication. Sit down with your family and have an open discussion about your goals. This gives everyone a chance to voice their vision of the future and can prevent surprises later. Don’t hesitate to put your needs first — after all, these are your assets, and this is your legacy. For instance, if you’d like to keep the farm in the family, now’s the time to speak up. Including your accountant, attorneys and financial advisor when meeting with your family is a good idea.
5. Document Ownership in Writing
It might seem obvious but having your ownership plan in writing is a crucial step. Outline the details of who is to inherit what, when it will happen and the processes required to achieve it. Also, develop a timeline to let your family know about your plan. It may be beneficial to have multiple meetings where you discuss the plan to get everyone on the same page. Then put together a list of action items to complete before your next meeting.
6. Review Your Plan Annually
People and circumstances change over time. The plan you’ve implemented will likely change over time, too. Review your ownership plan periodically and adjust your phased succession strategies to match any changes since you last wrote your plan.
If you’ve made the decision that you’re ready to transfer ownership of your farm, have an exit strategy in mind. Our Ag Bankers are available with the tools, resources and business succession advice you need to get started to build a solid plan. Reach out to one of our Ag Bankers today to learn how to develop your farm succession plan.
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