Farm and Ranch Succession Planning
The growth and strength of our nation, with its vast geographic territory, are integrally connected to farming. Although the percentage of the population engaged in farming has shrunk dramatically since the nation’s early days, there are still two million farms in the United States operating over 900 million acres of land, and six million people live in households attached to a farm. Farming remains a vitally important sector for both economic and national security reasons.
“I had rather be on my farm than be emperor of the world.” -George Washington
In light of the considerable challenges faced by family farms, particularly small ones, including high land prices, stiff regulatory requirements, rising equipment costs, and the unpredictability of weather, it is essential for farmers to implement business and estate planning strategies that will strengthen their likelihood of success over the long term. Farmers should carefully consider which type of business entity will facilitate not only the present success of their farm, but the future as well. Their planning choices should also take into account the eventual transfer of the farm to the next generation. Family farms are more likely than other businesses to be passed down to succeeding generations, so the strategies implemented should consider not only the needs of the present generation, but also those of the generations that will follow.
Farm transitions are a transfer of three rights: income, management, and control of equity. Make sure you have the right legal documents to keep your farm stable and responsibilities clearly defined during and after a transfer.
This is a time where you’ll need some professional opinions, particularly for the financial and legal aspects of your farm transition. At CountryLawyer we provide the legal expertise that you and your family will need to implement a successful transition. We know that the process ahead can be very daunting. So we have provided a general outline of the process below.
Treating all children fairly – but not necessarily equally. This might include implementing a plan that allows the child who is managing the farm to have control of day-to-day decisions, and be provided with a reasonable salary for services rendered, while dividing net profits equally among all the children.
Consider other types of business entities and estate planning tools. A limited liability company (LLC) or a family limited partnership (FLP) can be formed to protect assets, reduce tax liability, and provide for an orderly transfer with minimal conflict between family members. Using these business entities, a management and decision-making structure can be established that will not only facilitate the current success of the farming business but also allow all the affected family members to feel assured that plans for the farm’s future operation will be implemented.
It is impossible to know what tomorrow will bring, so it is important to put plans in place to provide for yourself and your loved ones if something should happen to you. Although people often find it difficult to think about being too ill to care for their family or themselves or passing away, this discomfort is minor compared to what your family may have to endure if you do not have an estate plan in place.
Some forms created and developed by Robert Andrew Branan with Virginia Cooperative Extension, Virginia Tech, and Virginia State University.