Five tips for adult children of farm owners approaching a critical decision.
You and your
siblings have sensed it for some time now.
Your parents are slowing down. Your time helping out on the family farm has become less frequent, due to work and raising your own family. Each year a little bit less gets done, and a little more of the wonderful farm you grew up on is falling into disrepair.
You still have a deep and lasting emotional link to your parent’s farm, but you know that change is coming whether you want to accept it or not.
And statistics support your intuition—only 10% of family farms last for longer than three generations.
As one of the responsible children, it is very likely to fall on you to begin a very challenging and emotional conversation: when your parents can no longer run the farm and want retire, or, if they become unable to work the farm, what legacy do your parents want to leave you, your brothers and sisters and the grandchildren? Where do you and your family stand, when it comes to farm and land succession planning?
Though conversation and process will likely be an emotional one for you, your siblings and your parents, it needs to happen… much sooner than later.
Here are five tips that can help ground you and give you the tools needed to help your parents build a farm succession legacy plan that works for the whole family.
1. Get together and agree the time is now
Regardless of how you approach your parents—you alone or as a group—you should start talking with your siblings and other possible heirs. The first step is not to talk about what to do with the land or which heir will get what. Rather, the first step is to get everyone on board that the conversation should happen soon. Building consensus is essential to making the process easier down the road. Get family members and heirs on board early and help them own the process. As the responsible sibling, you’ll want to start the conversation, but not dominate the process. It needs to be a total family effort, and the dynamics of a family make up can often prove to be a challenge in and of itself.
2. Identify where you might need help and start to reach out
Farm succession planning is a highly complex process that requires expert advice and professional help. Connect with local experts early on in the process, as they can help guide you along the way. Some advisors that might be useful include:
- Local farm and land real estate broker
- Banker
- Financial planner
- CPA
- Estate planning lawyer
- Long standing family confidante
- Professional mediators
3. Understand the difference between succession and estate planning
Connecting with local advisors will help you gain clarity about the various and complex processes involved in transitioning a farm. A useful distinction to draw is that between a succession plan and an estate plan. Each farm family scenario is different and unique. An estate plan could be in place without a succession plan or vice versa. Put simply, both are necessary and are, in fact, different tools. A succession plan maps out the future use of the farm and its land; while an estate plan creates the legal infrastructure and documentation to protect the succession plan and ensures that it fulfills your parents’ wishes.
4. Build consensus on the end result of your farm succession plan
This is easier said than done. There are any number of emotional challenges that can throw roadblocks up to establishing concrete goals for the succession plan. Your parents might not be ready to give up control. Siblings could have different motivations or intentions. Idealistic siblings could want to be saviors (even if they have no real farming experience). Family matters are complex, and this is where bringing in third party, objective professionals can really help. Honest dialog supported by a team of professionals can help your family select the best end result for the family farm, which could include:
- Selling the farm to a family member or members
- Liquidating the farm assets (equipment and land)
- Leasing the land
- Retaining the farm by selling an agricultural preservation easement to the state or county
- Investigating land development opportunities for all or part of the property
5. Consider the implications of achieving the end result you desire
So, you, your siblings, other heirs and your parents have reached consensus on the end goal of the evolving farm succession plan. Lean on your professional team of real estate advisers to help you work through the implications of achieving the farm succession plan’s end goal. Consider:
- Does the end result provide for your parents’ retirement needs?
- What will the tax implications be over time?
- Is your family protected against creditors and other risks?
- How will profits/revenue be shared among heirs still running the farm?
- How will profits/revenue flow to heirs not involved in the farm’s operations?
In the end, getting started now, having honest dialog, gaining professional support and starting with the end result in mind will help the farm succession process a success.
It will be an emotional roller coaster no matter how much you plan. But by keeping these big picture items in mind, the emotional process will at least yield beneficial results for your parents, your family and future generations.
Have a farm or land experience to share? Want more details on what is discussed above? Contact us today. We are happy to help.