Family farm succession planning
By KRISS NELSON
DES MOINES – Family farm succession planning was a popular topic during the 2018 Iowa Power Farming Show last week, as a near packed house filled a seminar on the topic.
Jim Harvey, president of Heartland Financial Resource Group (HFRG), provided some advice on how to move forward with the succession process.
“The goal here is to identify what some of your family farm issues are,” he said. “One issue might be you have no plan, no will, nothing set up, nothing in writing. That’s an issue.”
“Once that is mentioned, people put themselves in the picture of planning from the perspective of succeeding your family farm legacy.”
According to Harvey, a successful farm legacy plan requires creativity and planning. Information provided by the HFRG stated its goal is to help you make a successful transfer of your farm business to the next generation, family members or a preferred non-family member.
“Think about the special goals and objectives,” Harvey said. “Think about the goals you and your family have talked about. Think about the difference of where you are today and where you were in your farm operation five to 10 years ago and think about how things are going to change.”
Oftentimes, he said, many farm business owners don’t even know where to start.
“Think about if you don’t do anything and nothing is documented,” he said. “You’re in a world of hurt.”
Getting something started
Harvey said the goal at HFRG is to first help people take action.
“Make an appointment to take action somewhere and get that started moving forward and implementing a plan,” he said. “Before you go to the field, get some ideas and objectives together. Let’s meet, get started on the strategy. While you’re in the field we will put some ideas together.”
“After planting we can discuss the ideas for you to go meet with your attorney or CPA, and then, by the end of the year, we will have something done.”
He added the basic foundation of family farm succession begins with specific goal setting. During this process, he suggested identifying issues which could include family and family dynamics; non-ag-related assets; the transfer of assets for potential tax advantages or disadvantages; ownership (life estates, trusts etc.), operation of the farm and setting a timeline.
“During the planning process, we run into farm operations where the land has been put into a corporation. You may have an LLC, you may have a partnership and so on,” he said. “If those pieces are out there, or what you think you want to do, this falls in to this category of operation.”
To help organize your thoughts, Harvey said to collect data.
“You might have financial sheets, buy-sale agreements, a trust in place, wills in place, investments, retirement plans. All of these things go into the big picture,” he said. “All of these things go into the big picture because sometimes succession planning means other things than transferring the assets.”
Farm leases may also affect a transition plan.
“We talk a lot of times if you’re thinking of transitioning the operation to the next person, maybe you should start getting their names on the lease or the landowners familiar with the children, or whoever,” he said, “so if something happens now that farm lease is maybe not at risk.”
Harvey also suggested collecting information on crops, livestock and cash flow.
“Figure out how much income you are going to be able to have and how much income is the new operator going to be able to have,” he said.
Plan implementation may be nothing other than having it written down and designed.
Harvey recommended, for this part of the process, having legal and tax advisors involved.
“Make sure you sit down and get your goals and data all put together,” he said. “Get some ideas on how you want to design it and then this is where we will go with you to your attorney and present the ideas to them. When we get together, confirming those goals and objectives is going to be critical.”
He added it’s also a good idea to complete a current estate tax analysis.
“Even if an estate tax may not be a part of it, you want to understand what it is or what it isn’t,” he said.
Also, as a part of the plan design, Harvey said if there is a younger person in the operation, to be sure you have intentions documented.
“With a lot of your younger persons in your operation, the key is having something documented,” he said. “Get it written down. You want that on the table to begin with. Get the written agreements on those intentions so there is proof of those wishes or discussions.”
For the implementation of the family farm succession plan, Harvey said it’s important to prioritize planning, draft documents, strategic funding and involve necessary advisors, family and employees.
After implementation, he said the plan should receive ongoing monitoring.
“Monitor the plan for changes. Review strategy, verify goals and objectives,” he said. “Some of you may already have plans and one of the processes we do a lot of is reviewing those. We give you a second opinion.”
During the family farm succession process, Harvey said HFRG will help to provide a team approach to the plan.
“We try to do everything we can to make sure you are comfortable and we want to make sure we help you with what you have thought about,” he said. “We attend attorney meetings and we can help you make those connections. In some cases, if we are there, we can keep the plan moving that you have already spent some time on. Attorneys like that a lot because they’re not having to start over. We work hard with your advisors as well as try to bring as many other advisors to the table you may need.”
Harvey spoke with the group and helped them with some short-term options to get their family farm succession plan started.
In one case, a producer has three daughters with some sons-in-law and grandchildren showing an interest in taking over the family farm. How does he move forward?
Harvey suggested starting out having a flexible, yet controlled plan.
“You need to be in control,” he said. “You want to have it so it can be changed. That would be the first criteria.”
The second criteria, Harvey said, would be to have a meeting and possibly incorporate an outside person to be the meeting’s facilitator.
“When you meet with your children, walk in and tell them we are going to do some planning,” he said. “We know what we want to do, but we have some questions. You walk in with the questions, but letting them know you are in control they aren’t.”
Also in family farm succession, Harvey advises to not just give the farm away.
“We had a case last year where a grandson was really wanting to farm and he was heir apparent that would keep the farm going,” Harvey said. “In setting up the strategy to bring the grandson in and learn the business, we had him rent 80 acres. He was going to have to pay custom rent on some of the equipment, but instead of saying, ‘Here, you can use our equipment,’ let those persons that think they want to farm learn about the real process of it.”
“You let them understand that it costs money to do these things so they are having to attend to the business side,” Harvey added. “It proves they really want to farm. It also lets the other members know they’re not just going to get the farm for free. There’s going to be some work.”
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