In the United States, family farms account for about 98% of farms. Additionally, these farms produce about 85% of the nation’s agricultural output. Many of these farms have been in the family for decades, for generations. They are, without question, the foundation for our nation’s food supply and beyond. However, a USDA study in 2012 found that 89% of these family farms do not have a succession plan in place and about 70% of the farms were likely to change hands in the next couple of decades. The average age of a farmer in the United States today is 57.
The reasons for the lack of succession plans vary, but one thing is certain: without a solid plan in place when the time comes to transfer the farm from one generation to the next, the farm is more likely to be absorbed by a larger farm or to be used for non-farming purposes than it is to continue as family-run farm.
A good succession plan takes time, money, and effort.
It involves a discussion of the senior generation’s goals for the farm, a review of the current state of the farm from a business perspective, an analysis of exposures to risks which can thwart the plan, a discussion about getting the senior generation to financial independence, and estate planning.
Unlike estate plans, which concentrate on tax liabilities and the various ways to lessen the tax burden, succession plans focus on the future of the farm. They’re an integral part of an estate farm plan. When you decide to retire, your farm succession plan may include:
- Transferring or selling ownership to a family member
- Liquidating farm assets
- Renting or leasing your land and/or equipment
- Selling or contracting your property
You should concentrate on the desired final outcomes of the succession. Ask yourself what you and your family envision for the future of the farm? Do you want to stay involved with the operation, even on a smaller scale? What kind of income do you need for retirement and health care costs? If you have someone who could take over the operation, are you comfortable that they can run it profitably?
It is important to make sure that your succession plan will not fail.
The reasons that succession plans can sometimes fail include inadequate cash flow, liquidation of some assets for retirement, poor farm estate planning, and unresolved issues. You can seek out help from qualified professionals who are a neutral party to help you make the right decisions. The following are examples of these professionals who can help:
Deciding what happens with your farm or ranch is not an easy task, but you are not alone.
- A financial or estate planner who specializes in farm estate planning
- A moderator or arbitrator to help with family discussions
- A banker to help with financial decisions and resources
- An accountant who has income records and projections for your business
- A personal attorney, or one who specializes in tax issues
DFA Insurance partners with several quality providers, including Nationwide’s Land as Your Legacy program, to assist you in easing the transition to the next generation and ensuring long term success for your operation.
As an example, the Land as Your Legacy program looks at the following key elements:
- Succession Planning
- The successful transition of your business to the next generation
- Business Planning
- Your strategy for profitability now and in the future
- Risk Management
- Identifying and preparing for risks to your operation, including health insurance, long term care and property and casualty insurance
- Financial Independence
- Ensuring your financial independence from the farm operation after retirement and mentorship training for the next generation
- Estate Planning
- How you would like your assets distributed and liabilities paid
DFA Insurance can evaluate your farm and your specific situation to provide a recommendation for the best transition plan for you. By taking a look at your assets long before you are ready to transfer ownership, you are giving yourself time to choose the best decision for your family. Call DFA Insurance today at 1-877-358-9523 and speak with an agent about your options.