Farm Transfer Planning
Part 1: A Key to Viability
National Farm Viability Conference
Albany, NY, May 23, 2017
Kathy Ruhf, Land For Good
What is farm succession?
• The transfer of a farm from one generation
or owner to another
• Transfer vs. succession vs. transition
• Business vs. real estate
• Income, assets and management
Why is farm transfer planning
important?
• The business life cycle
• Vision of retirement
• Security in post-farming years (farm/nonfarm)
• “Succession effect”
• Next generation needs to know
• Legacy
• What is the alternative???
Succession planning
• Succession/transfer planning is the
process to determine how a “farm” will
pass to a transferee.
– Multiple stakeholders
– Planning takes months; implementation can
take years
– Things change
• Planning versus “the PLAN”
Transition planning and farm
viability
• Is the business viable?
– Pass on as is
– Expand
– Modify
– End  another operation
• Is there room for the next generation?
• Is there a successor?
– Grooming the family successor
– Finding a successor
Types of plans
• The “No Plan” Plan
• The “Gonna Do Something Someday” Plan
• Features of these plans:
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Provide government with tax revenues
Allow state to decide
Keep attorneys busy
Legacy of disharmony
Farm sold to “highest and best” use
• The “Start and Keep At It” Plan
Family vs. business
in succession planning
A family business
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Loyalty & harmony
Emotional
Mission: nurture offspring
Equality
Unconditional acceptance
Permanent relationships
Power tied to generation
& birth order
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A business family
Performance &
profitability
Mission: produce
profitable goods
Competency
Acceptance based on
performance
Contractual relationships
Power based on authority
and influence
Elements of a Transfer Plan
Business life cycle
Business life cycle
transition planning
EARLY (20s -40s)
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Focus on financial & production systems
Develop business plan and refine re growth,
profitability and family needs
Network with other farmers
Create processes for good communications
with family and employees
Acquire assets (farm and non-farm)
Create will, Power of Attorney, Health Care
Directive, guardianship; revisit periodically
Start saving (incl. retirement, rainy
day/emergency, kids’ college, etc.)
Establish business entity/ies and other legal
structures for ownership of assets such as
farmland, infrastructure, and business entity
Monitor and assess business viability
Develop advisor team (legal, financial, etc.)
Mature family business practices (e.g.,
meetings, records, job descriptions)
Assess business viability; adjust/
expand/adapt business per plan
Consider/obtain insurance (liability,
casualty, health, life, crop, other)
Create/monitor exit plan
Fine-tune business plan
MID (40s-60s)
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Acquire additional assets
Develop a vision for succession/exit
and a written plan; share with family
Review insurance needs (life, health,
long-term care); implement needed
Re-evaluate/expand team of advisors
Contribute to savings plan(s)
Develop transition plan:
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Formal retirement plan
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Legal/business structures
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Estate plan; update will etc.
Groom family successor/implement
plan to recruit successor/prepare
business for sale
Train successor esp. financial mgt.
Assess business value and viability;
make adjustments
Develop structures for asset transfer;
buy-sell agreement
Consider/pursue farmland protection
easement
Scale business up as needed to support
you and your successor
LATE (60s-70+)
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Update succession plan
Clarify retirement path
Calculate retirement needs,
including financial, social, health
care, etc.
Consult regularly with advisors
Revisit estate plan incl. will
Continue (or begin) regular
family/transition meetings
Begin process to cut back; focus on
farm activities you enjoy
Complete formal transfer of
management control
Continue to mentor your successor
Determine retirement housing;
move from farm if in the plan
Begin or continue asset transfer
according to plan; may include
sale/gift of real estate
Shift to non-farm activities
Determine ongoing income share
from farm if part of the plan
The “soft” issues
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Values and beliefs
Goals and objectives
Communications
Emotions (e.g., fear, anger, trust)
Underlying personal & family issues
Avoidance and procrastination
How many generations?
Family v. other “stakeholders”
The soft issues
• Must be addressed before “entities and
instruments”
• Need specific skills & structures
• Create the environment
• Who is the client??
Farm Transfer Planning
Part 2: Approaches, Strategies & Tools
National Farm Viability Conference
Albany, NY, May 23, 2017
Atty. Annette Higby & Atty. Rich Cavanaugh
Working with Advisors
A Farm Succession Plan Involves:
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Business Succession Planning
Retirement and Liquidity Planning
Disability and Death Planning
Tax Planning – Business and Estate Taxation
Estate Planning
Medicaid Planning
To be successful you need to work in a team.
Working with Advisors
– Business or Farm Transfer Planner
– Accountant
– Lawyer – Business Planning / Estate
Planning / Medicaid Planning
– Appraiser / Valuation
– Mediator
– Team Players
Working with Advisors
Determining Feasibility:
– Farm viability is inextricably linked to farm
succession
– Balance Sheet, Business Plan and Cash Flow
– Effective Legal Structure
Farm Succession
Pace and Progression Dictated By:
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Arc of the farm business
Size of the estate
Mix of farm and non-farm assets
Retirement needs of senior generation
Personal goals and objectives of each generation
over time
– Raises issues of changing roles, money and death
A Farm Succession Plan is Never “Done”
Legal Structure of the Farm
Business
Dual Legal Structure of Farms
• Farm Operating Business
• Farmland Base – Shielded from Liability
of the Farm Business.
• Lease of Farmland by the Farm Business
– Land Costs in Lieu of Rent
Legal Structure of the Farm
Business
Business Planning will address:
• Transfer of farm income and operating
assets to heirs
• Transfer of management and control to heirs
• Death and disability planning
• Retirement planning
Legal Structure of the Farm
Business
The Buy - Sell Agreement
* Planning for death, disability, withdrawal
* Terms of the buy out
* Valuation
Legal Structure of the Farm
Business
Business Planning Basics
Choice of Entity
• Transfer friendly – structure for transferring
ownership of assets
• Flexibility – disparate income allocation /
voting control
• Taxation
• Personal Liability
• Ease of formation / exit
• Outside investment
Legal Structure of the Farm
Business
Business Planning Basics
Choice of Entity
Taxation
* Partnership
* S Corp
* C Corp
Legal Structure of the Farm
Business
Estate Planning (will or trust) will most often
address the final disposition of farmland.
Why?
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Tax Basis Rules
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Asset may be needed for retirement
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Concern for non-farming heirs
Legal Structure of the Farm
Business
Estate Planning Basics
• Will or Will and Trust
• Durable Power of Attorney
• Advance Directive for Health Care
Legal Structure of the Farm
Business
Estate Planning Basics for the Farm Estate
• Specific Bequests – farm operating entity /
farmland / other real estate
• Non-Farming Heirs
• Tax apportionment / Liens and mortgages
Working with Advisors
Who is the client?
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Both spouses?
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Parents and farming heirs?
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The family?
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Spouse and Second Spouse?
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The farm?
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Lessor and Lessee?
Special farming audiences
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Farmers without successors (see LFG pub.)
Junior generation on the farm (see LFG pub.)
Families with special needs
High conflict families
Elderly farmers
Special farming audiences
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African Americans
Hispanic and other ethnic groups
Veterans
Immigrants and refugees
Farmworkers
Women
Special farming audiences
• Systemic discrimination and prejudice
• Implicit biases (yours, client’s, advisor’s)
• Cultural differences
– Values and goals
– Family dynamics and communications
– Customs and norms
• Language barriers
Special farming audiences
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Plain language or translated resources?
Partnerships and consultants
Awareness & skills training
Customized outreach
Targeted programming (e.g., succession
for women farmers project)
• FLIP SIDE = land access & “linking”
Roles for service providers
• Who’s on the
team?
• Who’s the driver?
• Sharing
information
• Communication
• Confidentiality
• Document storage
Roles for service providers
• Build advisor network & foster networking
• Practice “good referrals”
• Develop infrastructure to help clients find
advisors
• Who needs to be involved in which
decisions and steps?
• Who “leads”?
• How will advisors communicate?
Challenges for providers
• Not in your job description
• Financial planning and farm viability
templates/protocols may not integrate
succession planning
• Not enough time
• Not clear where to start
• Not sufficient expertise
• Not an income-generator
• Not easy to find needed experts; inadequate
network
Roles for Service Providers
• Awareness of issues, methods, “teachable
moments”
• Encourage & support farm families
• Information, resources, education & referral
• Assessment  referral or next steps
• Plan coordination/coach/facilitator
• Subject expert/team member
Team of Advisors
• Farm business
consultant
• Lender
• Accountant
• Financial advisor
• Land use planner
• Retirement planner
• Attorney (tax, estate,
elder care, real
estate, conservation)
• Insurance agent
• Health care specialist
• Mediator
• Conservation/land
trust professional
The team approach
• Build advisor networks & foster networking
• Practice “good referrals” & communication
• Develop infrastructure to help clients find
advisors
• Be clear about your role; don’t promise
outside your comfort zone
Thank you!
www.landforgood.org
[email protected]