The agricultural sector plays a pivotal role in providing food, fiber, and raw materials essential for human survival and economic growth. One of the most pressing issues in the agricultural sector is the increasing age of its operators and owners and the need for effective succession planning. Many farmers and agricultural business owners are approaching retirement, and there is a growing concern about who will carry the torch in the next generation. According to the USDA, the average age of farmers in the United States is 57.5 years. This demographic shift is not unique to the United States; it is a global concern. Without adequate succession planning, the agricultural sector risks losing decades of experience and expertise.
Significance of Succession Planning
Succession planning in agriculture is essential for several reasons:
1. Ensuring Continuity: Successful planning ensures the uninterrupted operation of farms and agribusinesses. By passing on knowledge, resources, and responsibilities to the next generation, the agricultural sector can maintain its productivity and sustainability.
2. Preserving Knowledge: Older generations of farmers possess valuable knowledge, techniques and practices that have been refined over decades. Effective succession planning helps preserve this wisdom and transfer it to the next generation.
3. Sustainability and Continuing Your Family’s Legacy: Agriculture is the backbone of food security and the global economy. Sustainable succession planning ensures the continued production of food and other agricultural products, thereby contributing to global stability and well-being. One of America’s greatest and oldest institutions in its economy is the family farm. By effectively executing your succession plan to the next generation you can assure your family’s legacy to be carried out.
Challenges in Agricultural Succession Planning
Implementing succession planning in the agricultural sector comes with its unique set of challenges:
1. Limited Interest in Farming Careers
2. Financial Hurdles
3. Estate Planning and Taxation
4. Communication and Family Dynamics
There are a few steps involved in succession planning for agricultural assets. These steps include:
Set your goals. What do you want to achieve? Do you want to transfer ownership and management to your children? Do you want to sell your asset to an outside party and indicate who or who not? Once you know your goals, you can start to develop a plan to achieve them.
Identify your assets. What assets do you own? This includes land, buildings, equipment, livestock, and other assets. It is important to have a clear understanding of your assets so that you can make informed decisions about their transfer.
Identify your potential successors. Who would you like to see take over your farm, ranch, or agricultural asset? This could be one or more of your children, another family member, or a trusted employee. It is important to identify your potential successors early on so that you can start to prepare them for their new roles.
Communicate your plans. It is important to communicate your plan to potential successors and other family members. This will help to ensure everyone is on the same page.
Implement your plan. Once you have communicated your plans, it is time to start implementing them. This may involve transferring ownership of assets, developing transition plans, or putting other necessary steps into place.
Other important questions to be asked in this succession process, these include:
• Specific family situation. Do you have multiple children? Are they all interested or educated in farming or farm ownership? If not, how will you decide who takes over the business? Have you made the successor(s) aware they will be receiving the asset or responsibility? If so, do they know the financial situation or management duties of the operation?
• Your financial situation. How much debt do you have? What is the value of your assets? How will you fund your retirement? Do you have enough excess operating funds to set up a life insurance policy helping give liquidity to the operation or pay out members?
• Your business goals. Do you want to expand your business? Do you want to retire early? Your succession plan should be aligned with your business goals.
• Tax implications. There are a few tax implications to consider when transferring agricultural assets. It is important to consult with a tax advisor to make sure that your succession plan is tax efficient.
Succession planning can be a complex process. By following these tips and utilizing agricultural specialized professionals such as an estate planning attorney, tax advisor and lenders, you can overcome the challenges of succession planning.
Lawson Plafcan is Senior Vice President, Agriculture and Commercial Banking at Simmons Bank. He may be contacted at Lawson.Plafcan@
SimmonsBank.com.
