Planning for the successful inter-generational transfer of a farm ideally begins years before the process is required. Planning ahead ensures that when a farm family reaches the succession juncture, both predecessor and successor are positioned for a smooth transition.
Part of making that happen lies in assembling a team of people trained to take operations through the success process. It’s important to have the right stakeholders involved to make the difficult decisions involved with transitioning a family business. These are the men and women on whom the livelihood of the farm depends, and who typically have a vested interest in the operation’s success.
Obviously, a strong working relationship between predecessor and successor is important. Others to involve in succession planning — and their specific roles — include:
- Accountant: Identifies the succession plan’s tax and financial implications.
- Attorney: Drafts the legal paperwork necessary to facilitate ownership transfer and succession.
- Insurance representative: Determines the right insurance products — such as life, disability and health insurance — and how they’ll factor into the overall succession plan.
- Lender: Provides the right financing options for both the continued operation of the farm and the transfer of assets from predecessor to successor.
- Financial planner: Provides guidance on meeting long-term financial goals and ensures the right financing is in place to enable a strong succession.
- Outside consultant: A farm consultant can serve as a third party to help resolve any family conflicts and keep the succession plan on track.
- Policy adviser: Someone like a USDA Farm Services Agency specialist can help ensure your succession plan follows all FSA payment limit eligibility rules and other regulations relevant to federal farm programs.
Each succession team member should leverage his or her knowledge about your farm operation, as well as general industry expertise, to help you through the succession process. For example, an accountant and attorney can work together to write up ownership transfer paperwork in ways that can best manage the financial and tax implications of the process. A lender is important to include to ensure the process enables the successor to take the operation’s reins without shouldering an unsustainable financial burden. And an accountant and tax professional can work together to determine the right kind of business ownership structure (LLC, FLP, etc.) that accounts for all parties’ financial goals.
No single team member works in a bubble; working together is important to ensuring a seamless farm succession. That’s why the team-building portion of the succession planning process should include a specific plan for how each individual team member will work with the others. That happens through routine communication and regular assessments of how each team member is performing. Addressing each stakeholder’s strengths and weaknesses will help ensure the succession plan is executed the right way.
That exploration may reveal the need for an unconventional approach. The right succession plan structure accounts for not only external stakeholders like those listed above, but also family members themselves. In addition to building your team of external stakeholders, it’s important to identify family members and their roles in the succession process. Not every generation may want to be involved in the operation.
An 85-year-old grandfather, for example, may see more opportunity to preserve the farm and its livelihood by making his 35-year-old grandson the primary successor rather than his 60-year-old son. Options like that may be more financially viable in the long term. A comprehensive succession planning process examines all options reaching the right plan for the farm family.
Planning ahead for a successful inter-generational transfer is necessary to sustain a viable family farm over the long term. Retirement for the predecessor is rarely easy, and the process of taking the reins of a farm’s operation may seem a daunting task for the successor. But with the right team in place and by planning ahead, farm families can make the process smooth and gratifying for all generations involved.