Farm Life - Farm Succession: Determining Your Legacy
It’s human tendency—we don’t like thinking about death and certainly don’t enjoy discussing it, but when it comes to the family farm business the conversation cannot wait or be left solely up to estate planning. Wills, trusts and the like have been in existence as far back as the times of Henry VIII. Transferring land from one hand to another is, relatively simple. However, transferring a viable business from one owner to the next can present its own set of challenges. According to John Baker, an attorney working for Iowa State University Extension and Outreach, business succession planning moves the family farm business from the “here and now” to the “there and then.”
This begins with making business decisions using business criteria. “I have one son and one daughter,” says Baker. “That doesn’t mean I have to or should divide my assets in half. If my daughter worked within the business, I need to recognize her contribution. You shouldn’t treat your successors equally; you need to treat them fairly.”
If one heir has worked on the farm and currently operates it, then dividing the farm equally among all your children does not complement a business succession plan, and can in fact contradict it. Abiding by this thinking, farmers have a decision to make. If the intentions are to keep the farm not only in the family but family-run, a succession plan that transfers management, income and some assets during the life of the owner is crucial.
Communication is the key to prosperous planning, but sometimes families make common communication mistakes which include poor timing, inappropriate location, failure to designate roles and failure to use proper vocabulary in discussion. During a Thanksgiving visit or at the family dinner table while passing the salt is not where true business decisions are made. Similarly, introducing a banker to your “son” or “daughter” instead of your “business successor” can set the wrong expectations.
Once roles and plans are defined, it is ideal for the senior generation to incrementally release ownership of short term assets to the successor. This method serves a dual purpose. The exiting farmer gains a steady income while the beginning farmer builds equity and gains expertise from the long-time business owner. A word-wide survey of nearly 17,000 farmers indicated of all duties passed on to the successor, the last managed decision transferred was the paying of bills, and second to last was negotiation of loans. Prioritizing bills, arranging loans, maintaining farm records and identifying sources of funds are all essential managerial skills the successor must know to successfully operate the family farm business.
The decline in new farmers is continuing to grow with increased life expectancy, and the 2012 USDA Census of Agriculture indicates there are five times as many farmers over the age of 65 than under the age of 35. This creates unintended implications for both beginning farmers and rural towns. It becomes harder for younger age groups to become stewards of the land and local businesses, churches and schools begin to appear ghostly without young families to inhabit them.
Passing on the farm can come with its own set of challenges—you’ve worked your whole life to build up a personal enterprise, and now the future looks unsure. So, it’s time to ask yourself this question. What do you want for your family farm business? And what do you need to do to get from the here and now to the there and then?
