Kitchen table serves as center of dining and succession planning for the farm
Planning for the future of your farm and how to entrust it to the next generation is just as important as planning your seeds and inputs. Angela Gloy, Purdue University Extension ag economist, says discussing and implementing farm succession planning goes a long way to ensure amiable family dinners. “An Iowa State University study estimates fewer than 10% of farms in the U.S. have succession plans,” she says.
• Communicate succession plans verbally and in writing.
• Evaluate your succession plans annually.
• Involve the entire family in the plan’s discussion.
Transparency is key to succession planning, meaning communication is both verbal and in writing. “Everyone brings their entire financial and personal picture to the table,” Gloy says. “If one member already has some personal planning, bring it.
If other haven’t started, be honest. The priority in developing a plan is to choose a team approach, emphasize development and implementation, and create a whole-farm assessment.”
“First, identify your farm’s business goals,” Gloy says. “Take time to clearly discuss, define and refine your farm business’s mission and vision statements.”
Second, list key players in a file or notebook. All business partners, family members, attorney, accountant, insurance agents, lenders, financial planners and consultants should be listed with name, address, phone numbers and email contacts. Each team member should get a copy of the plan.
Third, have a planning timeline. “Identify estate transfer planning goals and meet with family members to discuss them,” Gloy says.
“Can your farm afford to support additional family members and families? Evaluate the cost of living per owner, because phasing in and out of a farm operation introduces changes to current expenses.
“What’s the farm income stream? Are owners currently receiving draws from the farm account? Is the current strategy optimal for owners after new owners are brought in? Watch current farm debt load and debt potentially coming in with new owners.”
“Management strategies also play an important role in the farm’s risk management profile,” Gloy says. “To what extent do new members complement the existing skill set, and help temper operational and or managerial risk?
“Recognize the value of a formal management transfer plan within the confines of your succession plan. Complete risk assessment before and after the plan’s implementation.”
Include estate planning in the overall plan. “Your estate plan is a means of providing for your family while you’re alive, and upon your death,” Gloy continues. “It addresses property distribution and tax burden concerns if you die and ensures your health and medical wishes are carried out if you become incapacitated.”
Succession plans should detail buy-sell agreements, business entity agreements, operating agreements and sales/lease contracts.
Have an agenda for each meeting, Gloy insists. “Ensure everyone’s opinion is heard,” she says. “Include spouses of farm business owners. Develop a strategy for managing discussion. Have one person take notes. Set a date and assign agenda responsibilities for the next meeting.
“Please put your own plan in writing,” advises Gloy. “It offers little benefit to others if your plan is known only to you. The future of the family farm could be compromised in the absence of a succession plan.”
Hayhurst writes from Terre Haute.
This article published in the June, 2011 edition of INDIANA PRAIRIE FARMER.
All rights reserved. Copyright Farm Progress Cos. 2011.