The Dirt Issue 34 – Farm Succession

Posted on January 3, 2019
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Transferring the farm
Many factors contribute to a successful agricultural industry, but one you may not have thought of is farm succession. Currently, families operate 99 percent of U.S. farms. The farm business may be set up in any number of ways from sole proprietorships to family partnerships or family corporations, but at the root of the endeavor is a family. What happens to those farms as one generation succeeds another is important not just to the families concerned, but also to all of us. After all, it is the enormous commitment of farming families that has given us our stable, thriving agricultural base.
 
Not a simple matter
The notion of the family farm still resonates with many Americans. We may only need to think back a couple of generations to a time when members of our own family were on the farm. At some point, someone related to us probably had to deal with the issue of farm succession, if not preservation. The decisions made then undoubtedly echo in some families even now. A farm is, after all, many things to a farm family. Obviously, it’s a business, usually a family business and therefore anything but impersonal. A farm is a family’s home, their lifestyle, their identity within the community and, very possibly, their sense of family itself. A farm is land-based wealth that projects a certain legacy of its own.
 
When it comes to farm succession or, if you like, farm transfer, it is nearly impossible to value a farm by solely rational, numbers-driven criteria. Its value involves deeply personal family and individual goals and expectations. It involves emotions and relationships that can be forever altered by the terms of transfer.  
 
Farm succession starts with a question
This question is fundamental to any farm succession plan: What does thefarmer/family want to happen to the farm? The thing is what the farmer wants and what the family wants aren’t always the same. Is the farm even to stay a farm? If so, who will farm it? Are family members willing—or qualified— to farm it or, to keep the farm in farming, will it have to be leased? Who decides? Thecurrent owner(s) only, or is it a family decision?
 
What’s always true is the situation for each farm is unique to that farm, that family. Fortunately, there are legal instruments which can address the question of what will happen to the farm, both now and as circumstances evolve over time. Farm succession planning is not a destination per se, but a process subject to review and alteration as conditions change.  
 
Help is at hand
Any farm operator wanting to get familiar with the issues involved in farm succession can easily access some great resources. Northwest Farm Credit Services (northwestfcs.com), for example, offers a number of helpful tools from virtual classroom/video conferencing sessions to in-person Family Business Succession Workshops and Family Business Succession Retreats as well as a number of online resources such as video series and succession guides. A very thorough resource is available online from the Washington State Conservation Commission, Office of Farmland Preservation. It is titled, Planning the Future of Your Farm: A Workbook Supporting Farm Transfer Decisions. These and many more sources provide clear direction and background for the process.
 
The first step is to start
The earlier farm succession planning starts, the greater the number of options. Once goals are set, qualified advisers can show the farmer ways to achieve them. Everything from minimizing estate taxes, avoiding probate, ensuring equitable distributions, and providing for a whole raft of threats can be accomplished given the time and the will. And what’s more, they can be set up so that the farm transfers intact and viable.
 
Two options near and dear to SPF
We’d be remiss is we did not mention two specific options that can be employed to accomplish a successful farm transfer. Often farm equity is thedefault retirement plan for many farmers. Realizing their investment by pulling capitol out of the farm upon retirement may put their successors at risk. One way to raise capitol is through a conservation easement or willing sale of thedevelopment rights attached to the farm. The net effect is this: the retiring generation gets the money from the sale for retirement, the new value of thefarmland without the development right results in reduced estate taxes to thesuccessor; and the farmland remains farmland in perpetuity.
The farmland can be owned and farmed just like always, but cannot be converted to development.
 
The second option is the make available some or all of the farm in a scheme to aid beginning farmers. This option is particularly appealing when successive generations are not keen to farm themselves but do not want the farm to pass out of the family.
 
The many benefits of a well planned farm succession
For the agricultural community at large, Planning the Future of Your Farm: A Workbook Supporting Farm Transfer Decisions says it best, “Community development around agriculture depends on the aggregate of individual decisions that families make about their farms.” But, as important as that is, thereal impact of a well-planned farm succession ensures the true legacy of any farming family, preservation of the family itself.