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Uncle Al's Big Picture Transition Plannng Process

Thank you to Dr. Alex White, Virginia Tech Dairy Science for this post.  This is one of a series of Transition Planning articles that we will share over the next few months from Dr. White.  Dr. White can be reached via email at axwhite@vt.edu.

Last month I made a bunch of sarcastic (and not so sarcastic) comments to get you thinking about your future and your family’s future.  Hopefully you’ve started thinking that transition planning might be worth the effort.  A little bit of planning might help preserve your family farm or business, and more importantly, it might keep your family together.  So what’s the next step?
 
Try to determine the goal of your transition plan.  When you boil it down, there are basically 5 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.
 
2.   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, 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.
 
3.   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!
 
4.   Keep the family from farming – this situation usually comes about because the older generation wants to treat their heirs “equally”.  Understandably, many parents don’t want to show favoritism amongst their children so 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”.
 
5.   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 3 and Option 4.
 
Once you have determined which one (or more) of these options is the best for your family and for the family farm, we can start the planning process in earnest.  The main steps on the process are relatively simple.  Here’s Uncle Al’s Big Picture Transition Planning Process:
 
1.   Procrastinate – Put it off until you actually have the time and energy to do it.  Congratulations, most farm families have already completed this step!!  Now you can check off this step and move onto Step 2!  You’re making great progress!!  Seriously, you are.
 
2.   Decide to Take Action – At some point (that’s the nice way of saying “at some family member’s death”) you will be forced to start the transition planning process.  It’s much better to start the process as early as you can.  You will have many more planning tools at your disposal if you start now.  If you wait until someone has died, you have lost the opportunity to use several of the key planning tools.
 
3.   Develop a Transition Management Team – Face it, no one knows all there is to know about transition planning.  It involves farm production, financial management, income & estate taxation, legal issues, labor management, communication, etc.  Yes, it might cost you some money to develop your team and have regular meetings.  But it’s like the old FRAM© oil filter commercials – “You can pay me now, or you can pay me later”.  With legal and tax issues, it almost always costs a lot more to clean up the mess left by no/poor planning than it costs to develop a good plan ahead of time.
 
4.   Set up a Timeline for the Transition – When you start the planning process early you will realize that the transition does not have to occur overnight.  You have time to mentor the younger generation.  You have time to take the proper legal and financial moves for your family and farm.  Let’s develop a workable timeline to make the transition seamless.  If you wait too long to start the process, the transition does occur overnight – the night that the owner or manager dies.
 
5.   Develop a Written Plan – This includes a written business plan that every business should have.  It also includes your written transition plan.  Putting it in writing makes it more important to everyone involved.  It also gives you a sense of accomplishment.  And, it helps minimize arguments caused by “selective memory”.  Pull out your transition plan and your business plan at every business meeting to see if you are moving towards your goals.
 
6.   Accept the fact that transition planning is an on-going process – Determining the future of your family and your family business is not a “once and done” item.  You will constantly be making changes as tax laws change, or as family goals change, or as the economy changes.  It is much easier to adjust an existing plan than it is to come up with a brand new plan.
 
In the upcoming months we will go into these steps in much more detail.  I’ll try to address the major issues involved in transition planning, including legal forms of organization, written job responsibilities, intra-family communication, retirement planning, and estate planning. 
 
Disclaimer: I am not licensed to give specific legal advice, tax preparation advice or financial advice.  I will address these topics from an educational, big picture aspect.  If there are certain general topics you would like me to address, please email me at axwhite@vt.edu.    Until next month, your homework is to start having a conversation amongst your family members and business partners.  Just start communicating (notice I didn’t say “talking” – you need to listen, too!).


The Farm Credit Knowledge Center supports all types of agriculture.  We strive to share relevant, fact based content from trusted and reliable sources to help share information that will be of benefit to both agriculture producers and consumers.

 
Monday, February 19, 2018
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