Family farms have been passed through generations.
The Midwest is filled with farms.
Cattle roam to and fro.
Crops like wheat, soy, and corn rotate through the years.
The land is beautiful.
You care for the family farm like the generations before you have done.
According to a recent High Plains Journal article titled “Don’t be a failed family-business statistic: Plan for your farm’s future,” the future of your family farm depends on how well you plan.
Gone are the days where land could pass between generations without an estate plan.
Without doing so, the chances of keeping the farm in the family is quite low.
Only about 30 percent of family businesses make it to the second generation.
With such high stakes, what should you do?
First, assemble a team of professional advisors to help you in this process.
They should include an accountant, financial planner, life insurance professional, estate planning attorney, and possibly a banker.
Create a long-term strategy and plan accordingly.
This should start long before you retire.
You will need both a succession plan and an estate plan.
What are these?
A succession plan prepares your family farm for a smooth transition in ownership through developing the next leaders, avoiding disputes, and managing tax consequences.
Estate planning is an essential part of succession planning because it supplies the legal tools to accomplish the task.
Because the stakes are high, you will want an estate planning attorney with experience planning for family farms and ranches.
This professional will be able to guide you through a number of complex issues.
What are some examples?
On-farm and off-farm heirs.
Not all of your children may pursue farming.
Some may have left the farm for other careers.
How do you balance inheritances for all of the children when the farm is quite literally landlocked?
You may want to define roles through different ownership structures.
Doing so can manage expectations for all of the heirs.
Smooth financial transition.
Taxes can take a huge chunk out of your estate, if you fail to plan properly.
When your primary asset is land, your liquidity is low.
Can you say “land rich and cash poor”?
You will need cash to pay the estate taxes.
If you do not plan for this contingency, part of your family farm will need to be sold to pay the bill.
By the way, a life insurance professional is essential when it comes to having the right amount of cash show up at the right time.
Address financial needs of current and future generations.
Do you want the family farm to remain active for generations?
If yes, then you will need to consider how this can be supported?
How can income be generated to meet the needs of all?
Your family farm will not pass successfully to the next generation by default.
You will need to put a plan in place and review your plan every few years.
The stakes are too high to neglect this.
And hope is not a strategy.
Reference: High Plains Journal (Nov. 8, 2019) “Don’t be a failed family-business statistic: Plan for your farm’s future”