During the past decade, the capital investment required for a farming operation has continued to increase as have land values. This has created multiple challenges for farmers.
Among those challenges is development of an appropriate estate plan and an appropriate business succession plan.
Estate planning typically involves planning for transfer of assets at death while minimizing death taxes, and planning for the management of assets in the event of incapacity during life. Everyone needs an estate plan regardless of their age, because death or incapacity is something that could happen untimely. There are a number of techniques that have been developed to successfully transfer assets at death (and during life) while avoiding death taxes.
The business succession planning can be an even greater challenge than estate planning. The reason is business succession planning is a process that can take a number of years to properly prepare for and complete.
A prime requirement for a successful business succession is the existence of a successor owner or owners who have the expertise and experience to successfully operate the business as successor owners. That experience and expertise can only be gained by a potential successor owner if he or she is actually involved in “learning by doing” in all phases of the farm operation, and not just acting as a “hired hand”.
Being involved in “learning by doing” means that responsibility must be delegated to the potential successor owner in a variety of operational areas, and the potential successor owner must be given real responsibility. This means that the potential successor owner may not do things exactly as they have been done before and the potential successor owner may actually make a mistake here and there. That is the price of preparation for ownership.
Your attorney and accountant can assist you with developing the legal and tax structure for a succession plan. In addition, your attorney and accountant can provide ideas for how to give learning opportunities to potential successor owners but it is your job to prepare the potential successor owner to be ready to assume the responsibility and risk that will come when succession occurs.
It is too easy to utilize younger family members who come into the business more or less as hired hands and delay their training as successor owners. The busyness of life and dealing with day-to-day details of the business operation and our personal lives can get in the way of taking the time necessary to plan and implement integration of the potential successor owners into the business in a way that gives them the opportunity to learn all aspects of the business.
It is, however, an investment of time that is absolutely necessary.