Farming is a staple…it’s what America was built on. It is the lifeblood of our food supply and the hard work these families put into it is incredible. And one constant in the farming industry is family…often times these farms have been handed down for many generations to the owners today. There is history and a legacy in the majority of farms in this country.
But there is a problem that present and continuing to grow…succession. Will the legacy of farming continue and remain in the original families or will they be lost to someone else or a large conglomerate. There are lots of factors to determine this but one consistent factor is whether the farms today are set up to be handed down to the next generation. Many think this is in disrepair and that many of the farms today may be lost and not handed down to the next generation.
Roughly half of all Nebraska’s producers do not have a succession plan in place, according to a report in TheFencePost.com titled, “Extension helping Nebraska farm families plan for the future.” It means that farm and ranch families are not preparing for the inevitable and the next generation is at risk, if they want to continue to operate the family business.
Succession planning is a process, not something that happens when an owner wants to leave the business. In many cases it starts many years ahead of an exit from the owners. Succession planning goes through hundreds of questions that involve the business, the family, tax issues, legal issues, operational plans, customers, and a host of other areas. It is something that a business needs to be guided through by a competent business succession attorney if you want it to have the outcome you desire.
The Nebraska Extension office, for example, has developed several resources to support families through this challenging decision-making process. In addition to educators available year-round, workshops have been developed to help members of the family understand the value of creating a succession plan. This education, combined with a competent succession planning attorney will help to make a smooth transition of the business.
Form a business side, there are some key factors every farmer needs to know and plan for in the process. For a farm to transition to the next generation, the size of the operation must be considered. It takes roughly 1,200 to 1,500 row crop acres to support a family. Will there be enough land to support the new family, as well as the older generation, when they are in retirement? That means that crop farmers may need as much as 2,600 to 3,000 acres to support the younger and older generations. If the farm includes livestock, the number of farmland acres could be lowered.
When it comes to estate planning, it’s common for older generations to divide their assets and land equally among their children. While this may seem like a good idea, this type of division can often time lead to problems. For instance, if one child and spouse have devoted themselves to keeping the farm going, what should happen to the other child and spouse who aren’t involved in the farm at all? This is just one of many questions that your estate planning attorney can help you work through in the discussions.
Treating the next generation fairly doesn’t always mean treating the children equally. This is a dilemma that many family businesses encounter, regardless of the industry the family is in at the time.
The majority of time people contact the Nebraska Extension when they are in their 50s, have inherited a ranch or farm, and have never run an operation before. They need help figuring out whether to keep the farm, how to run it, and how to make legal decisions.
A key to the success in making sure the next generation can effectively run the family business is to do your planning well in advance. Advanced planning is critical to the success of the family business. And regardless of how you set up the business, keeping the lines of communication open among all family members is one of the most important things you can do…both for the business and for the sake of family unity.
For families who are not sure how to handle the succession plan, there are resources that can help the entire family. To get started, meet with an estate planning attorney who works with family businesses (farm and ranch families in this example). They will be able to help with creating an estate plan and making sure it aligns with a succession plan.