“The second generation knows that a lot is a stake if something goes south with this transition,” Lisa Quist, regional vice president for Nationwide’s Land As Your Legacy program recently said on a Compeer Financial webinar.
According to Quist, anyone who wants a say in how business assets are handled after they pass on should have some sort of transition plan in place. If not done correctly, then the outcome might be settled at a farm auction.
“Family harmony is crucial to preserving the family farm,” she says.
Transition planning takes a team that includes:
- You and your advisor
- Banker/lender
- Insurance advice/risk manager
- Financial Advisor
- Accountant/CPA
- Attorney
- Other (Appraisers, agents, counselors, extension agents, etc.)
The Center for Ag Profitability says transition planning needs to be discussed with the entire family including off-farm siblings and that family business meetings can help the entire family communicate about sensitive issues.
Quist outlines five key elements of a carefully designed transition plan:
- Succession Planning. Creating the path to successfully pass the business to the next generation.
- Business Planning. Ensuring profitability now and in the future.
- Risk Management. Identifying and preparing for risks to the farm operation.
- Financial Independence. Creating financial independence from the farm so that the next generation can start receiving income from the operation and the senior operator can move into the role of mentor.
- Estate Planning Services. Getting the documents in place to create an orderly distribution of assets upon death.
A Nebraska FARMcast podcast recommends that before going too deep into a transition, stop and determine if the business is profitable and can be viable for the next generation.
This is especially important during the transition phase where at least two incomes might need to be generated from that farm or business. Look at the commodity productivity, farm efficiencies, and debt structure, which all help determine the overall viability of the business.
For more information on successful tips and templates about transition planning, go to nationwide.com or www.cap.unl.edu.
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