We spoke to more than 100 dairy operators, farmers and ranchers, and out of our list of 10 items, three concerns were chosen much more frequently than the rest – protecting assets for future generations, minimizing tax liabilities and ensuring a successful succession or exit strategy. Since these seem to be top of mind, let’s go deeper into each of them and explore how family farmers can address them through sound financial and estate planning.

Sherin mark
Mark Sherin
Farm Legacy Advisers

Concern No. 1: Does my estate plan protect my assets for generations to come?

You told us this was your top concern, and for good reason. You – and possibly the generations before you – have worked hard to get where you are today, and the desire to ensure that the fruits of your labor are passed on to future generations makes sense. A properly designed and executed plan is crucial for closely held family farms, not only to ensure that the business remains intact after the current owners pass on but also to protect the farm from external threats such as creditors or family disputes.

Estate planning for a family farm has its own challenges due to the complexity of farm assets, including land, equipment, livestock and the business itself. These assets are often illiquid, meaning they cannot be easily sold to cover estate taxes or other obligations. Moreover, farm families may wish to preserve the land and business for future generations, which may not happen without careful planning.

Here are some key components of a strong estate plan.

  • Will and trusts. Although each state’s laws are different, at the very least a will is essential for any estate plan, as it dictates how assets will be distributed upon death. However, relying solely on a will may not be enough. A revocable living trust can provide flexibility in how assets are managed after death and can help avoid probate, which can be a long and costly process. For some families, including irrevocable trusts in their planning may best meet their specific objectives and help preserve assets for generations.
  • Farm succession plan. This document outlines how the farm will be transitioned between generations, addressing concerns such as who will take over operations, how decisions will be made and how disputes will be resolved. It should be part of the overall estate plan to ensure that the farm remains viable for future generations. More on this below.
  • Asset protection. Family farms are vulnerable to lawsuits or claims, especially if there are multiple family members involved in the business. Asset protection strategies, such as forming a limited liability company (LLC) or family limited partnership (FLP), can shield farm assets from personal liabilities or external threats. These strategies can help preserve the farm's assets and protect them from creditors or legal claims.
  • Gifting and lifetime transfers. One way to reduce estate tax liabilities is through gifting assets during the lifetime of the current owner. Annual gifts of up to a certain amount (currently $19,000 per person in 2025) can be made without triggering gift tax. Larger gifts may be made using one’s lifetime exemption, either outright or in trust.
  • Life insurance. Life insurance is often used by families with large estates to provide liquidity, leverage and tax-advantaged benefits. In some cases, this may include providing an inheritance for children that are off the farm. Life insurance can also help fund buy-sell agreements, which arguably every business should have in place.

Concern No. 2: Am I doing all I can to reduce my tax bill?

This question came in a close second in our survey, and that’s no surprise. Not many of us ask our accountants if there is any way we can pay a little more each year.

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This is a good place to start when thinking about minimizing tax liabilities. For specific advice, please consult your tax professional.

  1. Tax-efficient business structure. The structure of the farm business has a significant impact on its tax liabilities. Sole proprietorships, partnerships, S corporations and C corporations each have different tax implications, and it's crucial to choose the right structure based on your operation’s specific needs.
  2. Depreciation and deductions. The IRS allows farmers to depreciate the cost of farm equipment, buildings and certain improvements over time. By taking full advantage of depreciation schedules and other deductions, farmers can lower their taxable income. Additionally, the Section 179 deduction allows farmers to deduct the cost of qualifying equipment and machinery up to a certain limit in the year of purchase, rather than depreciating it over several years.
  3. Tax credits. Several tax credits are available to farmers, including credits for investing in renewable energy, conservation programs or other sustainable farming practices. 
  4. Estate and gift tax planning. The federal estate tax exemption allows individuals to pass a certain amount of wealth to their heirs without incurring taxes. For 2025, the exemption is $13,990,000 per individual, but this is subject to change. This is in addition to the $19,000 annual exclusion gifts mentioned above. It may be possible to introduce leverage and discounting in your gifting strategies to improve the economics. 
  5. Conservation easements. For farmers who own large parcels of land, donating a conservation easement can result in significant tax deductions. A conservation easement is a voluntary agreement to limit development on the land, preserving its agricultural or natural state. The federal government provides tax incentives for farmers who take this step, which can help reduce estate taxes while preserving the farm for future generations.
  6. Tax-deferred retirement accounts. Farmers, like other small-business owners, should take advantage of tax-deferred retirement accounts such as SEP IRAs, 401(k)s or defined benefit pension plans. Contributing to these accounts can help reduce taxable income and provide retirement savings for the farmowner.
  7. Income shifting. You may wish to review your compensation plans looking for opportunities to shift income from family members in a higher tax bracket to family members in a lower tax bracket (reasonable compensation rules may apply).

Concern No. 3: How successful will my succession or exit strategy be?

One of the most critical issues for family farms is ensuring a smooth transition of leadership from one generation to the next. Succession planning involves preparing the next generation to take on the responsibilities of managing the farm and ensuring that the business remains viable after the current owner steps down.

Succession planning is often complicated by emotional ties to the farm, family dynamics and the difficulty of identifying a successor who is both capable and willing to take on the responsibility. Furthermore, many family farms are not designed to be sold as stand-alone businesses, making it challenging to transition ownership to non-family members.

Here are some key considerations we think about when building a succession plan.

  • Identifying successors. One of the first steps in succession planning is determining who will take over the farm. This decision is often influenced by family relationships, with the next generation often expected to step in. However, it’s essential to assess the skill set, interest and readiness of potential successors. An open dialogue with family members can help ensure that the transition process goes smoothly.
  • Leadership training. The successor must be equipped with the skills and knowledge necessary to run the farm. This includes financial literacy, operational expertise and an understanding of the legal and regulatory landscape. If promoting this person from within, best practice is to create a written development program to ensure they are well prepared.
  • Estate equalization. In some cases, the successor may not be able to inherit the entire farm or its value. An equal or partial distribution of wealth among heirs may be necessary to avoid conflict. But keep in mind that fair isn’t always equal and equal isn’t always fair. Strategies such as dividing the farm into portions or offering non-farm assets to other heirs can help maintain family harmony while ensuring that the farm remains intact.
  • Exit strategy for the current owner. The current owner must also consider their exit strategy. This may involve selling and/or giving the farm to the next generation or perhaps selling to an unrelated party. It’s important to plan to go to the next phase of your life, rather than going from farming to sitting on the couch. Don’t take this step for granted.
  • Legal and tax considerations. Succession planning must consider various legal and tax issues. These may include the tax implications of transferring ownership, the need for a buy-sell agreement and the structure of any sales or gifting arrangements. A well-crafted succession plan will minimize taxes and ensure that the transfer of assets is as smooth and efficient as possible.

Conclusion

In agriculture, there always seems to be more to do than there is time to do it. It’s easy to put this planning off, but the costs of doing so may be great for yourself, your loved ones, employees and your community. Your family and employees look up to you and think you have all this done. Please don’t disappoint them.

Mark Sherin is a registered representative of and offers securities and investment advisory services through Osaic Wealth Inc., member FINRA/SIPC. Osaic Wealth and its representatives do not offer tax or legal advice. Progressive Dairy is not affiliated with Osaic Wealth. This article is provided for information purposes only. Readers should consult their own professional advisers for specific advice tailored to their needs. Information contained in this article may be subject to change without notice.