Succession Planning – Leaving Your Legacy

In the business cycle, it’s never too early to think about planning for retirement and the next generation joining or taking over the family farm. With all the different aspects that could be involved in your operation (land, machinery, livestock), succession planning is not an easy task and it will take some time to think things through and make the best decisions for your family. Here are some thing you should keep in mind:

1. Who and when
It’s important to ensure the continued health and success of your operation for the next generation, so your first step should be to analyze who you want to operate your land after you retire and what is important to the family in either ownership of land or operation of land. Will your successor be as committed to the family farm as you are? Are they ready to take the next step and will you feel comfortable giving them control when the time comes?

2. Minimizing the stress of the situation
Succession planning and the idea of handing control over to someone else can be stressful, so keep in mind the decisions you make can put an emotional strain on your family. Communication is key and it will be important to communicate your intentions with all of the stakeholders, even if they won’t be directly involved in the operation. There will be a lot of things to think through and decide, so the more time you have to plan and set expectations for your family, the better off everyone will be.

3. Tax implications
Farmers have a general tendency to minimize and put off their tax liability. The plus side in doing this is lower cash outflow needs on the front end and a little flexibility with planning. The downside comes at retirement or during a reduction in acres, those deferred tax liabilities can pile up. Taxes due to operations (schedule F) or machinery and land sales can be very different. Often, land has a low tax basis and machinery has been fully depreciated. It’s important to consult your tax professional to start planning, preferably several years prior to retirement.

Every situation and family structure is different, however, our best advice would be to involve a trusted professional who can take you through the process and ensure you have everything in order.

Good business practices for your farm
A rainy day this summer is a great time to catch up on your bookkeeping. Putting together a year-to-date income and expense report mid-year rather than waiting until tax season can be helpful and healthy for your operation and allow you to review your expenses compared to your budget or at least your expectations. Taking a look at family living and non-farm income is also very helpful.

August is a good time to look at your likely crop yields and expected prices and compare that to remaining rent, equipment, loan payments, crop insurance premiums and other expenses. Doing this prior to year-end will help reduce stress and surprises and gives you the ability to sit in the driver’s seat when there are opportunities for expansion.

Grain marketing can and should be done year-round.

Not only will having grain contracted reduce uncertainty, it is useful for potentially locking-in profits and reducing downside risk. Pricing farm stored grain for winter or spring delivery ahead of time can also be a healthy process. Stay in contact with your Grain Marketing Advisor for opportunities and strategies.

Whether you have questions regarding succession planning and retirement, help in putting together a cash flow for year-end prior to harvest, reviewing a year-to-date profit and loss statement, or discussing opportunities for expansion, feel free to reach out to your AgQuest Business Relationship Managers. Together… We Find the Way!