By planning early for succession, farm owners have the chance to minimize debt, put plans in place in case of an unexpected death or accident, and pass on the knowledge necessary so the next generation can successfully run the business.
To begin the succession process, farm owners need to review depreciation schedules, go over life insurance policies, and check what social security benefits are available. People involved in succession planning also need to get copies of wills or trusts. If family members haven’t written a will, they need to do it.
“One thing that we find is that people don’t have wills, and if you have young children, it’s really important,” said Tracy Garofalo, accountant with PFB Members’ Service Corporation, in the Penn State webinar “Plan for Now, Prepare for the Future: Transferring/Succession Planning for the Future.”
Family dynamics come into play, because planners need to review what skills the next generation is bringing to the table.
“All of these things go into the practice of the farming operation being successful,” Garofalo said. “A lot of times what we see is that one generation can’t pass on . . . the knowledge of knowing exactly when to plant, and exactly when to harvest, and what to do to get the best feed ration, or who to work with. So, if you have that specific skill and can bring that to the table, there is a possibility of you eliminating that expense.”
Succession planning always needs to consider the children who are not a part of the farming operation. Sibling rivalry, fairness, and keeping the peace between family members is of the utmost importance.
Must be able to work together
“This is one of the hardest parts . . . because all the estate planning in the world won’t help if the generations won’t work together,” she said.
Gary Heim, agricultural attorney with Mette, Evans & Woodside, emphasized that tax considerations also need to be a large part of succession planning. All estate, state, and inheritance taxes have to be calculated and weighed — and that’s on top of all of the emotional components of passing down a farm.
“You often have to start transferring before you, as a parent, are ready to do it,” he said.