Succession Planning on the Farm

Succession Planning on the Farm
(iStock via Mitchell Williams Selig Gates & Woodyard PLLC)

Fewer and fewer family farms are passing on to the next generation. Even with technological advances, we’re seeing rural migration and rising farmland values contributing to this decline, as well as recent economic, weather and political events. But one of the main reasons for failing to transition successfully – despite the desire to do so – is a lack of succession planning.

Developing a succession plan is key to maintaining the future stability and survival of the family farm, positioning future generations to leverage accumulated knowledge, training and other values to continue pursuing farming success.

The challenge with succession planning is that the process itself is not simple, nor is it ever really finished. It is a detailed, and often time-consuming, undertaking that seeks to transfer knowledge, skills, value, control and ownership down the family line. Simply transferring ownership at death and leaving the next generation to decide how to operate the farm on their own is not a succession plan.

So, how do you start? It’s a good idea to drill down and understand the basics of succession planning, and then – through a structured set of steps – work your way back up to formulate the ultimate plan.

Following three main steps can help you create a succession plan that is both comprehensive and effective.

Step 1: Research, discuss and determine family objectives

Every succession plan is unique, crafted to best meet the objectives of the particular family and operation. A checklist of common succession planning issues can be helpful to discuss and identify potential roadblocks. After reviewing and discussing various succession planning issues, the family will hopefully be able to agree on and articulate their objectives and vision.

Step 2: Identify and implement tools to achieve the objectives

A common misconception is that succession planning and estate planning are the same thing. They are not. An estate plan is necessary to implement a succession plan and provide some of the most essential tools, but a succession plan involves much more. A business plan and the tools under such heading are also necessary to the succession planning process.

Step 3: Review the succession plan periodically and update as needed

Things change over time – in the family, in farming, in the world and more – so the succession plan might need to change accordingly. It is crucial to identify, address and make changes in a timely manner to ensure that the succession plan remains relevant. A strong plan reflects current needs, practices and objectives while establishing a solid foundation for the future.

Succession planning can be a complex and lengthy task, but it is also meaningful and critical. After all, the family farm is at stake. Taking a step-by-step approach can simplify the process and help a family really build something special.

Trav Baxter is an attorney and partner at Mitchell Williams Selig Gates & Woodyard PLLC. He assists businesses and individuals with tax planning, agriculture law and trust and estates.