Succession Planning—Bet the Farm on It

by Ward and Smith, P.A.
Contact

Despite recent trends toward consolidation in the agricultural industry, farming generally remains a family affair.  According to the United States Department of Agriculture, 97 percent of all farms in the United States are family owned.

However, our increasingly mobile society has interrupted the familiar narrative of family members working side-by-side on the farm.  Frequently, certain family members choose to follow alternative career paths while other family members choose to remain engaged with the family business.  Commodity volatility, a tighter lending environment, increased regulation, and an aging baby boomer population also present challenges to family farming operations in planning for the future.  As a result, developing a comprehensive succession plan is critical in today's environment to protect the long-term viability of the family farm and, frequently, family unity.  Here are some reasons why:

Every Business Needs a Leader—the Family Farm is No Exception.

After the traditional leader(s) of the family farm are gone, who will be in charge?  This is a decision that should not be left to chance.  All family members do not necessarily possess equal interests or capabilities.  Placing an unprepared, unwilling, or unable family member in a leadership role, intentionally or by default, can doom any business. 

Corporate and estate planning documents can provide for leadership succession to ensure the farm operation is managed by the most willing and able successor.  Sometimes, there are no family members willing to (or capable of) taking on this role.  In such cases, a leader from outside the family can be identified, while preserving ownership and income protection for family members not actively involved in the business.  A candid assessment of these issues can head off family strife and business turmoil following a leader's death.

Continuity is Critical to Preserving Relationships for Continued Success. 

Many family farms rely on key employees for their success.  If those employees have doubts about the future, they may look for different, more stable employment opportunities.  This loss in human capital can be costly and sometimes irreplaceable. 

The same is true with regard to outside business relationships—suppliers, bankers, and customers want to know whom they are dealing with and that a change in ownership or management will not affect them in a negative way.  By having a well-defined plan that is understood by all affected parties, important employee and professional relationships can be preserved even as transition occurs. 

Ownership of the Land is Critical to Continued Operations.

Frequently, the land is the most valuable asset of a family farming operation.  Owners of farm land should carefully consider how it will be owned in the future—whether jointly by individuals, by a corporate entity, or divided among the members of the next generation. 

Many farm families have found themselves engaged in bitter intra-family lawsuits as a result of joint ownership of land that is used (or perceived to be used) unequally by the owners.  These sorts of fights can be costly and cause the farm land to be broken up, jeopardizing continued operations and the overall value of the land.  On the other hand, careful design of future land ownership can ensure continuity and provide an income stream to family members who are not participating actively in the farming operation. 

The Government is Happy to be the Biggest Beneficiary of Your Estate, and It Wants Its Share on Time.

When discussing long term plans, most farmers indicate that they want to keep their farm in their family for as long as the family wants to operate it.  Even if the family later decides to sell or continue operations in a different way, having the flexibility to control the timeline and terms of that sale or transition is important for purposes of maximizing value and meeting other family goals. 

In some cases, however, these plans can be undermined by federal estate taxes due upon the farm's owner's death.  The federal estate tax applies to the value of all assets over a certain threshold and is assessed at a 40% rate.  Any tax due generally must be paid within nine months after the death of the owner.  If there is not sufficient cash available to pay the tax, it may be necessary to dispose of property at a "fire sale" or take on debt to satisfy the obligation to the Internal Revenue Service.  Fortunately, through advance planning, the estate tax burden often can be reduced significantly or altogether eliminated—leaving the farm owner's intended beneficiaries in position to make decisions about continued operations on their own terms and without the government as a cash-hungry partner.  

It’s a Dangerous World Out There—Protect What You Can!

Family farms often carry large operating lines of credit with land or equipment pledged as collateral.  Because of the very nature of farming, family farms also often find themselves victims of lawsuits alleging personal injuries, workplace injuries, or environmental violations.  Are the assets of the family farm owned in the proper corporate structure to minimize individual liability for claims against the business?  Is proper liability insurance in place?  Evaluating these questions will help minimize the possible liability of the current generation as well as the burden on the members of the next generation when they assume ownership of the farm and business.

For farm families, the farm itself often is their greatest asset of value and always is a source of pride and identity.  Without proper planning, however, the farm and its operations can be jeopardized when management or ownership changes.  A comprehensive succession plan focused on leadership, ownership structure, and continuity will provide the best chance for success into the future.  You can bet the farm on it.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ward and Smith, P.A. | Attorney Advertising

Written by:

Ward and Smith, P.A.
Contact
more
less

Ward and Smith, P.A. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.