For various reasons, fewer and fewer family farms are passing on to the next generation. Recent economic, weather and political events have certainly set forth a bumpy road for those interested in long-term planning.
Even with technological advances, rural migration and rising farmland values are also contribution factors. Even so, the vision to pass the farm down to the next generation is still prevalent among farming families. Lack of succession planning is one of the main reasons for failure transition successfully.
Developing a succession plan is one of the keys to maintaining the future stability and survival of the family farm over multiple generations. Such a plan can put each successive generation in a position to leverage their knowledge, training and other values to operate the farm for their generation to build stability and support opportunities for future generations.
It would seem easy to define succession planning as simply making a plan to pass the farm on to the next generation. However, the process itself is not simple, nor is it ever really finished. Succession planning is a detailed, and often time-consuming, process that seeks to transfer knowledge, skills, value, control and ownership down the family line. Simply transferring the family farm at death to let the next generation decide how to operate it on their own is not a succession plan.
So, how do you attempt to begin the succession planning process? A good starting point is to drill down and understand the basics of succession planning, and through a structured set of steps work your way back up to formulate the ultimate plan.
Three main steps can be used to develop a succession plan, and all of them must be addressed for the plan to be comprehensive and effective.
The first step involves discussion, research, thought, and ultimately determining a family’s objectives. Every succession plan will be somewhat different as it should be crafted best to meet the objectives of the particular family and operation. A checklist of common succession planning issues to discuss with the family can be helpful. Having such a checklist will also help the family identify roadblocks that may thwart the achievement of objectives. After a reviewing and discussing various succession planning issues, the family will hopefully be able to articulate their objectives and vision. Articulated objectives may compete with each other, but an open dialogue and discussion among family members should help identify which objectives are most important to the family and the success of the operation and set expectations regarding the transition.
Once the succession planning objectives have been determined, the second step involves identifying, explaining, and implementing tools to achieve the family’s objectives. At this point, the family is in a better place to understand the importance of the succession plan, and in turn, they will be better suited to tackle the tools needed to implement the plan. A common misconception is that succession planning and estate planning are the same thing. They are not. An estate plan is necessary to implement a succession plan and provide some of the most essential tools, but a succession plan involves much more. A business plan and the tools under such heading are also necessary to the succession planning process.
The third and final step involves the periodic review of the succession plan to ensure it is still relevant and does not to be revised or updated. Things change over time, and the succession plan may also need to change. It is crucial to identify and address changes and update the plan in response.
Succession planning is one of the main puzzle pieces to having a well-established and successful family farming operation. Taking a step-by-step approach to succession planning can help simplify what may otherwise seem like a daunting task. It can be a complex and lengthy process, but it is worthwhile and means something, especially considering the family farm’s future is at stake. If each generation can maintain the common goal of farm succession, the family can really build something special.
Trav Baxter is an attorney and partner at Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. He assists clients with business tax planning, trust and estates, and agriculture law. Trav can be reached at email@example.com.
Republished with permission. Originally published in the February 14 issue of the Northwest Arkansas Business Journal.
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