As our legacy advisors work with farm families across the Midwest this winter, they're hearing a few things. As they're working with families to set up a legacy plan to transfer the farm to the next generation, they are discovering some gaps between what families have in place – and what they think they have in place.
Would you suddenly be in business with your sister-in-law if something happened to one of your farming partners? That's one thing you could ask yourself to start to determine whether your farm has clear plans for these scenarios.
If a family member wants to retire or dies or suffers a permanent disability that's going to prevent them from working on the farm, it can be a big problem. And that could happen much sooner than the timeframe for the farm to transition to the next generation – but many families don't have a plan in place for what would happen to the farm in this case.
We talked with a farmer who farmed with two of his family members. He said that he didn't think it would matter that there wasn't a formal written plan in place for what would happen if one of them wanted to retire or suffered a disability – because they all got along very well and would just figure it out if they needed to.
This sounds all right in theory but can become very difficult in the real world. Without a guide for how things will occur – such as valuing assets, time frames for buyouts, and who's going to be in business with who after the transition –it's tough to try to figure it all out on the spot. Add to that the emotions of the family if it's a situation involving the death or permanent disability of a family member.
Feelings may be running high or on edge – and that's probably not the best time to be sitting down to figure out detailed business agreements that will allow the operation to move forward. Your lender also has a stake in this: having a written plan in place will increase his comfort level with the operation.
The best thing is to have all of this figured out beforehand – in writing – before a transition could potentially happen. Even if everybody gets along well and immediately agrees on how a business transition should occur, having a clear plan in writing lets you ensure that everything will continue to run smoothly.
A good legacy plan includes agreements that address and plan for this type of scenario – not just for when the farm transitions to the next generation. Use some of your office time this winter to meet with a legacy advisor who can help you figure out what your family wants and needs from a plan, and then get a strong plan in place by working with them and an ag estate planning attorney.