LOVELOCK - There is an epidemic of sorts sweeping across America's farmland. It has little to do with the usual challenges, like drought, rising fuel and feed prices or crop-eating pests. The country's farmers and ranchers are getting older and there are fewer people standing in line to take their place.
Nationally, the latest agricultural census figures show the fastest growing group of farmers and ranchers are those over age 65. For every one farmer and rancher under the age of 25, there are five who are 75 or older, according to Agriculture Department statistics.
As our nation's farmers continue to age, the influx of new farmers is also declining. The financial capital required for these young farmers makes it almost impossible to get started. Many new farmers can only get their start by transferring the ownership and management of the family business from one generation to the next.
While many farmers dream of seeing their legacy passed on to the next generation, many postpone initiating a plan for the transition of their business for a variety of reasons. Many claim that there is not enough time to discuss these matters. Or if planning does occur, it simply involves the senior generation drafting a will describing how the farm assets should be divided among heirs.
The main question that the principal operator of a farm or agribusiness should ask is:
"Do I want to pass my farm operation to my heirs as an ongoing business or do I want to pass it on as a group of assets?"
If asset transfer is the goal, then an estate plan can be developed to determine who will get what, when they will get it, and how they will receive it. If the goal is to keep the business intact for the next generation, then a transition plan needs to be developed.
The goal of transition planning is to make sure the busi¬ness has the resources to continue for many generations. Transition planning helps the family analyze its current situation, examine the future, and then develop a plan of action. This includes planning not only for the transfer of assets but also managerial control. It should also include developing a strategy to meet the retirement needs of each generation.
No two transition plans are alike. Given the complexity of individual farm businesses and the unique personalities and characteristics of family members, a cookie-cutter plan, which families can adopt, does not exist. It is recommended, however, that the family address the issues presented here when developing the transition plan.
First, determine if the business is profitable. A business must be profitable in order for future genera¬tions to continue the operation. A comprehensive review should be conducted to determine the production, finan¬cial, marketing, and personnel management strengths and weaknesses of the business.
Involve the family; Transition planning is a process in which the entire family should have a role. It should not be about secret meetings between parents and the favorite sibling. Many operations utilize family business meetings as a strategy to involve the entire family in the transition process. Many two-generation family business arrangements fail because of poor family communication and relationships.
Develop a Plan to Transfer Assets; planning how to transfer the tangible and intangible assets of the farm operation should also be addressed in the farm's transition plan. In most cases, these plans are made and executed through the estate plan, which is initi¬ated upon the death of the principal operator. However, a business can also transfer many of these items to the next generation prior to the death of the principal operator.
Rarely does the next generation take over ownership of all the tangible business assets at once. Usually ownership is assumed as their experience and commitment to the business increase. These assets can be transferred through gifts, sales, or through the estate or a trust upon death. Due to the potential tax implications of transferring these assets, consultation should be with an attorney and tax practitioner, each having experience in transition planning.
It doesn't happen all at once. A timetable should be estab¬lished for accomplishing each step in the transition process. Without a timetable, you won't know if you are failing or succeeding in hitting your objectives. Many families will utilize a testing or a probationary period for the transfer of ownership, management, income, and labor. Given the complexity of most farm operations, the transition process could take years.
Transferring a family farm or farm business to the next generation can be a challenging task. Legal issues, tax laws, and personal differences between family members are some of the issues families must confront when deciding how to transfer the managerial and asset control of a family business. Working together, families can answer the tough questions and develop a transition plan that will provide the opportunity for the agricultural business to be successful for many generations.
Source: "Building for the Successful Transition of Your Agricultural Business" OSU Fact Sheet Series, D. Marrison, Extension Educator.
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