Reaching out to the experts may help you make the right decisions
How do we get the next generation to want to operate the family farm? I recently finished a great book, “Dirt to Soil” by Gabe Brown.
The book discusses regenerative agriculture revolving around soil conservation and soil building. Specifically, chapter five touches on farming and the next generation of farmers.
How do we efficiently and fairly pass down the family farm from one generation to the next?
The USDA National Agricultural Statistics Service reports that 88 percent of all U.S. farms are small family farms. I imagine a large percentage of those farmers would love for the farm to stay in the family. However, only 30 percent of these farms survive into the second generation, and only 12 percent are still operating into the third generation.
Reasons for this decline are many. Often, there are multiple heirs and when the farm is split up, one heir is forced to “buy out” the others to keep the farm intact. This can be difficult, especially as land prices appreciate over time. One way to avoid this is having one heir inherit the farmland while others receive cash. You can accomplish this through other investments or using life insurance proceeds to gift to the other heirs.
In other situations, there is no heir with an interest in continuing to operate the farm. This may be due to a lack of enjoyment in the work. However, often they are unaware of the profitability and flexibility of life that a successful farming operation can provide. Having serious conversations about the business side of the farm can be helpful.
There are many ways to start the process of asset transfer while you are still living. I would encourage you to speak with an Estate Attorney, preferably one familiar with farm assets and land transfer. This article is not about the specifics in how to set up an individual plan. That is too personal and dependent on your own situation to squeeze into a few paragraphs. However, talking to a CERTIFIED FINANCIAL PLANNER™ professional can help you take many questions into consideration.
One of the biggest mistakes farmers make is thinking, “My kids will figure it out when I’m gone.” The best action is to create a plan, or review the implementation of your current strategy. Farmers who are successful in transitioning assets tend to start planning early, generally in their 50s. Consider putting active family members in control of the operation (not necessarily ownership). Devise an exit strategy for inactive family members that doesn’t cash-strap the operators.
Passing down the family farm to the next generation doesn’t have to be complicated. Often all it takes is careful thought, and a discussion with your Estate Planner to draw up the necessary documents.
Brian Drane is vice president, financial advisor, LPL at Central Bank in Marshfield, Mo.