Winter is a slower season for farmers and ranchers. It offers family business leaders time to plan for the future. A recent article from Progressive Farmer, “Family Business Matters: Eight Practical Succession Ideas,” lists ideas to improve succession and estate planning efforts.
Update balance sheets. Families who own land passed through generations don’t always like to show the land at its current fair market value. Even if you intend to never sell the land, creating an estate plan requires an accurate valuation of all assets to minimize the consequences of estate and income taxes.
Chart ownership for the future. Family members often do not understand how they will achieve ownership of the business and its assets. Will it be a gift? Will there be taxes to pay? Or will it be a sale? Will they need to buy out non-farming family members? Without clear answers to these and related questions, people may operate on assumptions, which almost always leads to conflict or family fractures.
Start handing off management tasks sooner, not later. Plan for the transition by starting with discrete business functions. This could be as straightforward as making decisions about equipment, purchasing crop insurance, or enrolling in a Farm Service Agency. This allows the senior generation to delegate and observe while empowering and fully engaging the next generation.
Refresh estate planning documents. People often neglect to update estate documents. Review wills, trusts, trustees, beneficiary designations, advance medical directives, and power of attorney documents. Are the people named in various roles still appropriate? Does your estate still work in light of changing tax laws? This should happen at least every three to five years.
Assess tax consequences of exiting the business. Part of retirement funding is the tax liability of leaving the family business. Deferred income, prepaid expenses, and fully depreciated equipment can lead to significant tax exposure. Three to five years before your departure, start mapping out a plan with your accountant, estate planning attorney and financial advisor.
Create a relationship between family members and landowners. Those relationships will be vital to continuing the business if you rent property from an absentee landowner. You may not be able to influence the landowner at the time of transition to the next generation. However, establishing relationships with family members who will take over for you can reduce friction.
Communicate the benefits family members will get from working together to maintain the business. Passing land from one generation to the next often means siblings or cousins become business partners with undivided interests in the land or as shareholders or members of some legal entity. Family members who may not get along will benefit from having a “buy-sell agreement” in place. This spells out how partners can buy out each other’s interest if one or more family members want to sell. Talk to us; we can help reduce the potential for family conflict and plan for the future. Get our download Top 10 Business Owner Mistakes.
Reference: Progressive Farmer (Jan. 1, 2023) “Family Business Matters: Eight Practical Succession Ideas”
Yonkers Office (By Appointment Only)
Garden City Office (By Appointment Only)