January 11, 2005

Your farm's survival depends on good transfer, estate planning

A recent survey completed by Successful Farming magazine found that two-thirds of U.S. farmers have not yet named a farm business successor, and more than half don't have an estate plan. So farm families need to be concerned about the future of their farm business. Its survival depends on proper transfer and estate planning.

There are several steps involved in establishing a farm transfer plan and an associated estate plan. First, farm families must be clear about their farm business, family and individual goals. If goals aren't thought out and firmly in place, the transfer process will not succeed.

Second, it's very critical to determine if the farm business can generate enough income for more than one family. The transfer process can take several years, during which time multiple families must live on the income generated from the farm. If this isn't sufficient, that farm business can be in jeopardy. A related issue here is whether or not the retiring generation will have sufficient retirement income to live on.

Assuming goals are in place and the farm business can support more than one family, you can begin to decide on the strategies for the transfer process. Strategies can range from farming together as a trial period, to the formation of a Limited Liability Company (LLC) to an outright sale. The strategy or strategies selected depend on a number of issues, including the finances of all parties, tax issues associated with each strategy and treatment of other non-farm heirs. All must be addressed.

Once the transfer process has been established and written out in rough draft form, an associated estate plan must also be drafted. This is a critical part of the process because the estate plan, including the will, outlines what the wishes of the retiring generation are and how the transfer will take place.

A common example here is the inclusion of a buy-out provision in the will for the succeeding generation with the goal of keeping the farm in the family. It would state that the succeeding generation can purchase the farm land at a given value under specified conditions. Again, this is done to meet and fulfill the goal of keeping the farm in the family.

The combination of a strong transfer plan associated with an estate plan can enable a farm family to meet their farm business goals. This is a detailed process and requires the help of professionals. Once the transfer and estate plan have been roughed out, other professionals need to be involved to complete the process. Those professionals include an attorney, an accountant, a financial planner, the family's banker and others.

For more information, go to www.cffm.umn.edu and find "New Farm Management Publications" at the bottom of the page. Then click on "transferring the farm" and on "estate planning." You'll find several University of Minnesota Extension Service fact sheets that outline how to draft farm transfer and estate plans.

(Gary Hachfeld is an agricultural business management educator with the University of Minnesota Extension Service Regional Center, Mankato)

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URL: http:// www.extension.umn.edu/extensionnews/2005/farmsurvival.html  This page was updated Jan. 11, 2005 .
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