The week of June 10, Farm Journal is celebrating the next generation of American agriculture. Our goal is to encourage you to plan for the future and cultivate multigenerational success through the transfer of skills and knowledge. Think tomorrow, act today to align your asset, resource and financial legacy.
Do you want to know the costliest mistake a farmer can make when it comes to safeguarding the future of their operation? It’s neglecting to plan or having an overly simple plan, says Jim Angell, an attorney with Kennedy Berkley.
There are all sorts of reasons farmers are lax about succession planning. Maybe the patriarch doesn’t want to give up control or face mortality. Maybe some of the kids don’t get along or the parents are stymied by the thought they need to treat all their kids equally.
“Farmers have spent 35 years in survival mode, and succession planning has barely registered,” he says. “The past five or six years they have gone from surviving to thriving, but it’s still hard for them to believe a sophisticated plan is necessary.”
That sophistication comes into play when deciding how to treat farm and non-farm siblings.
“Fair and equal are not the same,” Angell says. “The farming child(ren) needs to be provided with some advantages in order for the farm to survive. They need more value to keep the farm going, but there’s a difference between value and cash.”
Angell advises farmers separate the operational (business) side of the farm from the legacy (land). Equipment has to stay with the operational side, for example.
When it comes to the land, if it’s important for each child to own land, divide it up in tracts and don’t put multiple kids on a tract, he adds.
A succession plan often includes several documents, one of which should be a buy-sell agreement, Angell advises. If you are in business with someone, you should know how to exit the arrangement. A buy-sell agreement is a legally binding document between co-owners of a business that spells out how a business should be transferred if a co-owner leaves the business willingly or is terminated.
Legal Vs. Relationship Pieces
Speaking specifically to the next generation, Angell says don’t hesitate to push for communication. In his practice, he usually sees the next generation first to work on their estate plan, and then they bring in the senior generation.
For the senior generation, don’t believe the same philosophy your dad used: You get what you get, and you don’t throw a fit.
“Please communicate,” Angell says. ”Currently, my firm is involved in 10 to 15 disputes where land was distributed equally and kids can’t get along or an LLC was set up but there is no way out.”
The good news is there are legal devices to do whatever a farmer wants to do. The key is using the right mechanisms for the relationship pieces.
“Is it worth it to jeopardize your children’s relationship for any reason?” he asks.
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