What’s Your Most Important Job Between Now and Retirement?

Most people involved in agriculture recognize that the population of farmers is aging; the U.S. Department of Labor states the average age of a farmer and rancher is 58. A significant portion of this population will be looking to transition their operation over to the next generation within the next few years. The topic of “transition planning” is something that attorneys, accountants and other professionals have aggressively addressed with clients. These same professionals tend to jump right into conversations about avoiding estate tax, minimizing income taxes and how to be fair to all the children in the family. While the technical aspects of legal and tax issues certainly need to be addressed, often times it is the simple, yet most important, issues that tend to get overlooked. Below are three important recommendations for farmers looking to retire in the next few years.

Identify a successor

The best succession plan is only as good as the person chosen to be the successor. As farm owners, the first place we look for this person is our son or daughter. Does your child have the skill set it takes to fill this role? Today’s farms are growing in size and sophistication. Not everyone is equipped with the tools necessary to successfully carry the operation forward. Given an adequate mentoring, the individual chosen needs to have what it takes to manage the operation in the future.

Should the individual be expected to complete a minimum level of college education or trade school before being considered for the position? Many studies suggest that there is a great benefit to a job off the farm for a few years before returning home. Is this something that should be considered in developing the farm’s next manager? The bar is being raised with each generation, and the future operator needs to be trained at a level that will allow them to be competitive in the future.

Whether we are talking about a college education or employment off the farm, the key is for the individual to achieve success in whatever path they choose before they return home. Returning home to take over the farm should be a choice, not a last resort because nothing else worked out.  Do you want the person that flunked out of college or was fired from their job to be the future of your family farm? We want the individual who has been successful in their education and/or employment and has proven they are willing to work hard for success.

Another criterion would be a “passion for farming”. Is this something they really love to do, or is it just another job? If you truly love what you are doing at work, it’s no longer work, but rather fun. This enjoyment will help carry them through the years of weak crops and low commodity prices.

Develop a Mentoring Plan

Once we have identified a successor, we next need to develop a mentoring plan to properly prepare them for the new role. Farming operations are usually the first tasks passed on to the younger generation. (This is usually because dad is tired of doing them) These operations include tasks like tillage, fertilizer and chemical plans, equipment maintenance, etc. The farm management tasks, however, are not often included in the mentoring plan to the extent they should be. Cash flow/banking, Ag programs, crop insurance, tax planning and record keeping are all tasks that fall into the management category. Understanding and participating in these tasks are just as important as planting wheat and making summer fallow. It is easy to put off this phase of the mentoring “until tomorrow”, but the future farm management team needs to start learning today.

Does your current operation fit the new successor?

I often observe large, sophisticated farming operations that have been built up and ran over the years by dad and mom. When I look to the next generation, it appears that the son or daughter does not have the interest or ability to handle the conglomeration that their parents have created. Putting the child in this situation could end badly This does not make the child unsuitable to run the farm, it simply points out that they are different than their parents and may want to do things differently. Take, for example, an operation that has a wheat farming component along with cow/calf operation. What if the child has no interest in the cattle operation, or vice versa? Does it make sense to force them into something that they have no desire to do? Can the operation be altered to fit the interest and abilities of the successor? I often ask my client, “Does your child have the ability and interest to handle your operation?”  If the answer is anywhere close to no, then it’s time to consider how we can modify the operation to make it a better fit for the successor. Proactively making the necessary adjustments together will increase the chances of a successful transition.

A successful transition plan is much more than estate and tax planning. It begins with identifying and grooming a proper successor(s) to take over the farm and then making changes, if necessary, to ensure their long-term success. Without these considerations, even the best made estate plan will likely not end well.

By Todd King, CPA

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