Farmers know there’s going to come a day when they’re no longer around to run their farms – and they know they should have plans in place for when that day comes. But farmers often delay planning because it forces them to think about difficult topics and make difficult decisions.
The first step to beginning a succession plan is to pull together a team to help build and implement a plan. The team should consist of trusted professional advisers, successors who will continue the farming legacy and other family members to help make those difficult decisions. Having a strong team in place is key to any successful plan.
Assembling a team of trusted advisers early in the planning process will help farmers explore the options they have when it comes to succession planning. The best plans often involve financial advisers, accountants and attorneys who can work together to ensure the succession plan is drafted to meet farmer goals and to be implemented in an orderly manner when the time comes to transition the farm. Introducing professional advisers to farm successors early in the planning process often makes for a smoother farm transition. It’s important for advisers to be familiar with the skills, experience and value successors bring to the farm.
One of the most important decisions a farmer needs to make is w¬ho will run the day-to-day operations of the farm when the senior generation is no longer able to do so. The answer may be simple for some farmers, for example if there’s only one child involved in farming operations. But the decision can be difficult if there are multiple children involved in running the farm. Professional advisers can provide suggestions for documents and provisions to include in the plan that set a clear path for decision-making and resolving disagreements. The plan may include organizing the farm as a limited liability company, corporation or other legal entity, or transferring farm assets to a trust.
Succession planning includes putting estate-planning documents in place for the farmer to carry out his or her wishes in the event of incapacity or death. Examples of documents that may be included in the estate plan are¬ wills, durable powers of attorney, health-care powers of attorney, trusts and marital-property agreements. When discussing those documents a farmer will be asked who she or he wants to name as agents, trustees and personal representatives. A team of professional advisers and family members can help farmers choose who is best-suited to take on those roles.
To address issues that may arise if a farmer is unable to operate his or her farm, a durable power of attorney should be in place that names an agent to make decisions and take certain actions for the farmer regarding farm finances and property. The document can allow the agent to pay bills and keep the farm operating in the event the farmer is unable to do so, either during a temporary period of time or permanently. If the farm is held in a trust, the farmer will want to ensure she or he has a successor trustee designated to make the same types of decisions with respect to trust assets.
Farmers will be asked by estate-planning attorneys who they would like to manage their assets after death. Depending on documents in the estate plan, a farmer will be asked to name a personal representative or trustee who will collect the farmer’s assets upon death, pay final bills and distribute the farmer’s assets to named beneficiaries. It’s important to consider the role the personal representative or trustee may have in operating the farm during the administrative period of the estate or trust. That means the period of time after the farmer’s death but before assets are distributed to farm beneficiaries.
When looking to start with farm-succession planning, start by assembling family members and professional advisers to have a discussion about transition options. It’s important to have the correct people ready to step in to run the farm when the time comes. Having documents in place to allow those people to do so provides welcome peace of mind.
Visit www.ruderware.com for more information.