As more farmers approach retirement, the future of family-owned operations hangs in the balance. While many families intend to pass the farm to future generations, it’s become rare for family farms to survive past the founders. The U.S. Department of Agriculture (USDA) reports that only 30% of family farms pass into the second generation, with 12% still operating by the third generation.
Although many farmers want to preserve their family legacy, they also need to consider their needs in retirement. Effective succession planning can balance these needs, but because of legal, financial and operational complexities, it’s important to approach this issue with a comprehensive framework.
Start early to avoid costly delays
Because succession planning involves every aspect of your farm’s operations, finances and family relationships, it’s important to start early – preferably at least five years before retirement. This will give you enough time to navigate legal structures, determine tax implications and have heartfelt conversations with family members. It also gives you a runway to make important decisions and create gradual transitions in leadership. If you procrastinate succession planning, you might find yourself making rushed decisions that can jeopardize your farm and family relationships.
By starting early, you can also help your successors gain eligibility for programs that can help with succession. For example, some USDA Farm Service Agency (FSA) programs are limited to applicants with at least three years of farm operating experience. As you work with your successors, it’s helpful to start building a transition roadmap that includes training milestones, preparing financial documents and legal steps such as updating wills or drafting buy-sell agreements.
Open communication builds strong transitions
If you want your farm to stay within your family, gather everyone together for honest conversations that dive into each person’s interest, capability and expectations for the farm’s future. While some family members could be eager to jump into an operational role, others might prefer to be more passively involved or even step away entirely. If you create a space for an open dialogue, it can help everyone feel respected and reduce the possibility of misunderstandings.
As you have these conversations, it’s important to distinguish between ownership and management. You may want all your successors to have a stake in the farm, but not everyone can manage day-to-day operations. If you clearly define who owns what, how decisions are made and how profits are split, you can help reduce future conflict.
Consider asking a neutral third party, such as a banker or wealth professional, to facilitate these conversations. They can provide objective advice and help your succession plan align with your family and financial goals.
Build your succession team: Start with a reliable banker
Today’s farms and ranches are far more valuable and complex than those of previous generations. This makes it critical to put together a professional team to help navigate the transfer of multimillion-dollar legacy assets.
First, start by choosing a relationship-based banker who understands your farm’s unique needs and goals. Your banker can serve as a connector who can help you identify and coordinate with the following professionals who play a unique role:
- Attorney – Drafts legal agreements, wills and contingency plans.
- CPA – Evaluates tax implications and helps minimize liabilities.
- Wealth professional – Helps align retirement goals, estate planning and overall exit strategy.
After you put together your team, develop a written plan that outlines roles and responsibilities. This plan should include inheritance structures with contingency plans for unexpected events such as illness or divorce.
Explore financing options to help with transitions
To help your successors develop a sustainable operation, they might need to tap into resources available through both government agencies and banks. The USDA Farm Service Agency provides programs such as farm operating loans and farm ownership loans to help farmers access capital, but they might be insufficient for high-value land transitions. In these situations, it’s possible to explore joint financing options with a financial institution that is an FSA-preferred lender. This status is given to lenders with the experience and authority to process FSA-guaranteed loans more efficiently.
A relationship banker can help evaluate these options and guide you to the most feasible option, even if it lies outside the bank. Bank loans, and many other financing options, are subject to credit approval – so being creditworthy makes it more likely that your loan will be approved.
Prepare successors
After you choose your successors, help them build hands-on experience long before the transition. They should work on the farm in a meaningful role that gives them operational experience in all farming seasons. This experience will also help your successors qualify for USDA FSA programs and support.
Your successors should shadow current farm operators, study agriculture/finance and start building relationships with a team of professionals such as bankers, accountants and wealth professionals to assist with setting your operation up for success. These experiences will help your successors cultivate both competence and confidence.
When done correctly, the succession of your farm won’t just transfer assets – it will preserve your legacy of hard work, resilience and stewardship. With proactive planning and the right team, families can keep their farms thriving for generations.
