- Plotting for a farm’s future involves estate, business and succession planning.
- Legally registering farms as business entities may help protect assets.
- Succession planning should include contingencies for the unexpected.
The passing of the head of the family is an emotional event, but when that transition also includes an agricultural business and decades of family tradition, it has even larger implications. By planning in advance for the farm’s future, farmers can protect relationships, finances and the family legacy.
Cari Rincker is an Illinois attorney whose firm, Rincker Law, PLLC, specializes in helping families plan for farm succession. Coming from a farm family herself, Rincker’s experience with farm succession issues is more than professional.
“My father is a farmer, and he’s looking at gradually reducing the time he spends doing physical labor,” she said. “So, as we go through that transition, we’re starting to have more conversations about what’s next.”
It can be difficult to talk to a loved one about the farm’s future, but such conversations lay the groundwork for a smoother transition from the owners to the successors, Rincker says.
“The law is one thing, but every family has its own dynamics,” she says. “When you’re talking about money, business and family, a lot of raw emotions can come up, and balancing all that can be quite a dance.”
Having a neutral third party in the room — or on the video conference — can help in those situations, she said, noting that farm succession mediation has become more common over the last 10 years.
Three overlapping components are important in plotting a farm’s future: estate, business and succession planning.
Estate planning may include making a will or trust to distribute assets to the intended beneficiaries, whether it’s a farm-specific asset or a more standard personal inheritance.
“I recommend trusts because assets in a trust don’t have to go through probate — they pass to the beneficiaries instantaneously,” Rincker says, noting that a will can take a year to go through probate before the assets are released. “I also recommend a trust because it’s private. It doesn’t ever become public record.”
Don’t try to have this perfect estate plan right off the bat. Just get something in place and then perfect it over time. Because even if you don’t have a will or a trust, there is still a plan.
Business planning includes making the farm a business entity, such as a limited liability company or corporation, to help protect assets.
“A farm or ranch should consider becoming a business entity to reduce personal liability,” Rincker says. “General partnerships and sole proprietorships don’t protect the land or personal assets in a lawsuit.”
Succession planning, on the other hand, spells out who will assume the farm’s operation and in what roles.
“This is the transition of management and knowledge from one generation to the next,” she says. “It’s probably the most delicate aspect, but also the most important. Without that, it doesn’t matter how great your estate plan and your business plan, you’re not going to succeed in passing the farm business to the next generation.”
Expect the Unexpected
Andrew Branan, an attorney-turned-professor at North Carolina State University who focuses on farm succession planning, says the plan needs to include not just how the farm will pass to the successors, but what happens if, ultimately, it doesn’t.
“One of my successes as a lawyer was a failure of succession,” Branan says.
Branan recounts working with a client who wanted to gift a percentage of his large, profitable operation to his two sons. His client’s plan included a provision for what would happen to those assets if the sons’ plans changed.
“A year or two later the client called and said his sons were leaving,” Branan says. “Fortunately for dad, he was able to hold on to the wealth — his operation wasn’t injured by having two of the principal players pick up their marbles and go.”
Both Rincker and Branan note that the planning components are living documents that should be reviewed and revised as necessary, and that information gathering can be carried out by families while the legal documents are in the works. Basic operation manuals, written procedures and redundancies in access to everything from building keys to account and policy numbers prepare heirs and employees both for the future and for unforeseen events.
“Sometimes I get terrified thinking, ‘If something happened to my father, am I going to be able to find the FSA numbers or get all the details in order to deal with the growing season?’” Rincker says. “I think those are details families need to work on.”
Perhaps most important of all, Rincker says, don’t let perfect get in the way of good.
“Don’t try to have this perfect estate plan right off the bat,” she says. “Just get something in place and then perfect it over time. Because even if you don’t have a will or a trust, there is still a plan — it’s just the plan the law in your state has given you. I think we’d all rather have the autonomy to decide for ourselves how things will pass to the next generation.”