A Conversation Worth Having
It’s Time To Talk Farm Succession
We need to talk about farm succession. It’s one of those difficult conversations that all too often gets delayed or avoided altogether, but it is necessary.
According to attorney Travis Benson, open, honest communication between family members can help lay the foundation for a plan to ensure a smooth transition. His firm, Thompson Law, PLLC, specializes in estate planning with clients in South Dakota, Minnesota and Iowa, so Benson is no stranger to these kinds of conversations.
“What we focus on is building estate succession planning where we have clarity, certainty and simplicity,” explains Benson. “And that goal is to keep families together to avoid as much conflict as possible after mom and dad die.”
Three Key Considerations With Farm Succession
Farm succession planning can be a daunting task. But with the right mindset and some good people in your corner, you can do what it takes to put a strong plan into place. Here are three key considerations as you approach farm succession planning for your operation.
1. Develop an estate plan.
Developing an estate plan with the assistance of an attorney or financial advisor is the all-important first step toward a successful farm transition. These professionals will be well-versed in the various legal and financial aspects of estate planning and will help your family understand differences between a will and a trust, assess risk, set up a power of attorney, evaluate tax implications and more.
Inviting other family members to the table during the process is also a worthwhile endeavor.
“When I sit down with a client, I want to learn about their family. I want to know what's really important to them,” explains Benson. “At the end of the day, this is about them. This is their plan.”
You will need to make decisions as to how your land, equipment, livestock and other assets will be allocated, and this won’t always be an even and equal distribution. There are many instances where one or more children are interested in taking over the farm operation and others who are perfectly content with their life and income off the farm. Having intentional conversations to navigate these decisions is extremely important.
2. Revisit your plan regularly.
It’s also very important to revisit your estate plan regularly. Life circumstances can and will change, and you’ll want your plan to account for those changes. The financial wellbeing of you or your children might change. Any number of potential red flags — drug or alcohol addiction, gambling habits, debt issues — might affect how you want to allocate your assets. A divorce in the family might also change how your estate plan is structured.
Benson advises his clients to take a closer look at their estate plan every three to five years — or more frequently if life changes arise. He likens this to popping the hood of the car to make sure everything is running as it should.
3. See the big picture.
Succession planning isn’t solely about determining who inherits which assets once you’ve died. “It's not planning just for death,” says Benson. “It's also planning for life.”
Many families look at ways beyond the scope of your typical estate plan to support a smooth transition of their farm operation and assets while still alive and well. This can be a smart decision should unexpected health issues arise that impact your own ability to manage the operation. It also has the potential to provide additional security to your offspring.
As always, it’s important to work closely with an attorney or financial advisor throughout this process to determine which model is going to best fit your goals and priorities.
One common approach is to set up a business entity, whether that be a partnership, corporation or limited liability company. Another approach involves gifting portions of your land and assets each year, up to the federal or state gifting limit, to avoid tax burdens. “The federal tax exemption (for gifting assets) is at an unprecedented high level right now,” explains Benson, making this option particularly attractive for some households in the current tax climate.
A Conversation Worth Having
Bringing things full circle, it’s important that you start this process by having an open, honest conversation about farm succession. Talk with your family. Meet with an attorney or financial advisor. Your farm operation is a big part of your legacy, and you want to pass that legacy on to the next generation as best you can.