Plan now for the future of your farm
No one wants to think about their own mortality but, unfortunately, it’s something that we must deal with and plan for.
Farmers and small business people that have worked hard to build their estates and legacy sometimes are the most resistant to dealing with the issue of what will happen when they are no longer around. According to a study by the USDA, the average age of farmers in the United States has been increasing for 30 years and is now 58 years old. With this aging farm population, it is inevitable that we are facing a large transition of farm assets in the very near future. Sadly, many farmers and their families are not prepared for this. So where do you start?
What would happen if I died today or became permanently disabled? Answering the question is the start of succession planning. This question leads to more:
1. Could the farm survive financially without you? The answer to this question often requires consultation with your financial planners, insurance agents, and lenders. Will your lenders be willing to work with your heirs? Do you have life insurance and disability insurance to reduce the financial burden in the event of a tragedy?
2. Would my passing create turmoil among my heirs? Unfortunately, this is a very common problem. Perhaps some of heirs wish to continue the farming operation while others may desire that the assets be liquidated and distributed as soon as possible. We see this situation arise most commonly in split families and families where some of the children have remained on the farm while others have pursued other careers. The answer to this question requires communication with the entire family. Their desires need to be known and dealt with prior to the passing of the principal owner. These discussions should include the family’s attorney and CPA. Do you have a formalized estate plan, trust, or will? Will your passing create a tax burden for your heirs?
3. Can the farm survive from a management perspective without you? It is also very common to see a reluctance among farmers to include young family members in the day to day operations of the farm and in management decisions. Too often, the task of running the farm is passed on without the proper preparation. If your desire is to pass on the farm to your heirs, include them in the management decisions and day to day operations.
Succession planning should involve your attorney, CPA, banker, insurance agent, financial planner or broker, but most importantly, your family. Many farmers that do plan for a farm transition do so without consulting their family to determine their desire. Do they want to continue the farm operation? Do they want to liquidate the farm and move to the city? Do they want to seek alternate uses for the property such as real estate development or recreation usage? In a family with multiple heirs, do some wish to continue the operation and some not? If so, how can this type of an estate be handled equitably and give all heirs their rightful distribution without a negative impact on the farm.
Many farmers feel that succession planning is only important as they get older. We all know of cases where farmers have been killed or disabled leaving their families without the financial means to continue to operate. It is truly a tragedy when a farmer inherits his or her family farm but does not have the financial means or the managerial skills to retain it. It is never too soon to start succession planning for your farm operations, but it can be too late.
Kim Light is the president and senior credit officer with Heritage Bank of the Ozarks, Lebanon.
