Post written by Kristin Taylor
Earlier this year, I attended a Farm Succession Planning seminar offered by Braintree Business Development Center and the Ohio Employee Ownership Center where I learned some of the foundations regarding estate planning.
A basic succession plan should include goals of the owner and other key groups, a plan to meet these goals and details on how they will be implemented and managed. Creating a well thought out plan will help to ensure an orderly transfer of the operating entity to new ownership, manage the impact of estate and other taxes, identify risks of the transfer and develop plans to mitigate these risk as well as developing a realistic value of the operation and real estate. Some potential issues that can be caused by not developing a succession plan include a reduced value of the operation, limited options of potential suitors and/or methods of sale, higher effective tax rates for the seller, loss of control and a burden on surviving family members in case of death. While the father in the photo above is not likely discussing succession of the family farm with his toddler, it was noted at the seminar that the best succession plans are laid out at least ten years before the transfer of ownership is set take place.
General outline for succession planning:
- Goal setting for the farmer / owner – include goals around income, legacy and control
- Goal setting for the stakeholders – include operation viability, children who left the farm and employees’ job security
- Farm management succession – ensure that stakeholders are capable of managing the operation and that they have the desire to continue, ensure the operation has economic viability, plan to cede control over time (can coincide with payments to the from the stakeholder to the owner)
- Identify a best case scenario and explore all other options, including a worst case scenario
- Develop a written plan (which can include buy/sell agreements, trusts, life insurance, etc)
- Implement the plan
Succession planning conversations can be difficult as they should include the topics of life changes, mortality and family relationships. Not only can the discussions be tough, but some seasoned farm owners also fail to plan because of a perceived loss of control, they’re too busy and plan to get to it later, they can’t envision doing anything else (even retiring!), planning is too expensive, they expect that their children will just take over the operation and others believe they are invincible.
Stay tuned for an upcoming post, which will dig a little deeper into buy/sell agreements, trusts and life insurance.