Look at farm succession planning strategies (Credit Corner)
(Note: We at MidAtlantic Farm Credit Services know January is often filled with downtime for many farms — time spent planning for the planting season ahead. Because of this, winter tends to be a good time to start the succession planning discussion within families. To help facilitate this conversation, we partnered with Dr. Alex White, a professor at Virginia Tech and a farm financial planning expert, to offer advice and words of wisdom for when people are ready to discuss the future of their business. Here is a portion of his article, which first appeared in the spring 2018 issue of our Leader magazine.)
One question I hear often is, “How do I transition my farm to the next generation?”
What could be considered the most important plan of your farming operation is often the most overlooked.
Transition plans are crucial to making sure your business keeps the same structure and purpose after you’re gone. A little bit of planning might help preserve your family farm, and more importantly, it might keep your family together. So, how do you begin? Try to determine the goal of your transition plan.
When you boil it down, there are basically five main options when it comes to transition planning for a family farm:
1. Keep the farm in the family: This option refers to the goal of the family to maintain ownership of the farm, whether they are actively farming the land or renting it out to others. The pride of ownership of the “family ground” or being able to bring the grandchildren “back to the farm” for a visit are often main drivers in this decision.
Keep the family in farming: This option tries to keep the family in agricultural production. This may mean keeping the existing farm in production or selling the existing farm to purchase a farm with better resources (better soils, water, or local ag services). Many times the families who follow this option are interested in improving their family’s situation and they are not emotionally tied to the land.
Chain the family to the farm: Unfortunately, many times the transition plan (or lack of planning) forces someone in the family to remain on the farm, whether that farm is profitable or not, or whether those individuals actually want to be a part of the family farm. This may not be intentional, but it can easily happen. Open communication and an objective view of your situation are critical!
Keep the family from farming: This situation usually comes about because the older generation wants to treat their heirs “equally”. Understandably, to avoid the appearance of showing favoritism amongst their children, many parents they leave equal shares of their estate (including the farm) to each child. Usually, this option leads to intra-family arguments over the future of the farm once the older generation has passed.
There is a huge difference between treating your heirs “equally” and treating them “equitably.”
Sell the farm: What is the difference between a “good sale” and a “bad sale”? A “good sale” occurs because it is the best course of action for the family and it meets everyone’s goals. A “bad sale” occurs when the farm must be sold against the will of at least one of the family members. Unfortunately, “bad sales” are often the end result of option three and option four.
Once you have determined which one (or more) of these options is the best for your family and the farm, you can start the planning process.
If you’re ready to start the discussion of planning for your farm’s transition, Farm Credit can help. Give us a call at 888-339-3334 and we’ll help you prepare to take the first step.
(Editor’s note: Dr. Alex White has taught a wide variety of college courses at Ohio State, North Carolina State, Ferrum College and Virginia Tech for the past 25 years. The courses he has taught include ag financial management, farm management, small business management, and several courses in person finance management. He has served as an Extension agent and as an Extension specialist (personal/farm financial management) for Virginia Cooperative Extension and has worked with Farm Credit in a variety of ways for the past nine years.)
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