Farmland and family farms have been the center of Midwest culture for generations. Here in Spencer, Iowa, family farms are our pride and joy. Many of us have deep roots in this community and industry. As farmers across Iowa think about retirement and the next generation of operators, many are asking how we effectively transfer the farm.
Midwest Land Management knows farm succession planning can be one of the most stressful and challenging things a farm family will ever face. Transferring ownership of your life’s work to the next generation is never easy, but it doesn’t have to be overwhelming. With the right team and planning, you can ensure your farm continues to successfully operate for generations to come.
Whether you just started thinking about retirement or are already in the process of transitioning your Iowa farm, these are the top factors to consider when planning your succession.
1. Communicate with your family.
Communication is key when beginning farm transition. Many farm owners wait to have “the succession conversation” because no one wants to talk about things like getting old, money, and dying. However, not having a succession plan in place can be a disaster if a farming parent becomes seriously ill or passes away unexpectedly.
Without a plan in place farm transition can be rushed and stressful. Not properly planning for retirement and farm ownership transition can leave families broke and broken.
The most important thing you can do when beginning farm succession planning is to sit down with your family and have open and honest conversation. Include both farming and non-farming heirs in the conversation. What are your plans for retirement? Do your kids even want to farm? What are their goals? Make sure everyone is on the same page and you have talked through any disagreements.
2. Assemble your farm succession team.
Farm succession planning can be very complex. There are legal documents, financial documents, and tax consequences to consider. That is why it is imperative to build yourself a team of trusted advisors that you feel comfortable working with.
Your succession team should include:
- Agricultural Attorney: To help you navigate the legal requirements of farm transition. An attorney will help with planning the best way to structure your farm transition and prepare documents such as wills, trusts, and more to help your transition go smoothly and according to Iowa law.
- CPA or Financial Advisor: A qualified CPA or financial advisor will help you with tax consequences during transition. They can help manage debt, prepare financial documents, and assist in planning how your farm will be financed and transferred.
- Ag Lender: Your lender will play a big role in helping to finance your farm transition. They will work with you to make sure your farm has enough working capital to cover day-to-day operations.
- Farm Management Professional: Often farm owners forget they can hire a professional to help with farm transition. Farm management professionals like Midwest Land Management have years of experience in agriculture and understand the unique challenges of Midwest farming. We can help with everything from soil testing, cropping budgets, farm equipment, tillage analysis, and much more to ensure your farm is set up for success.
3. Consider Both Farming & Non-Farming Heirs.
A farming family’s biggest challenge with farm succession is what to do with non-farming children. What is fair? How can you treat each child equally but divide your farm unequally?
If your goal is to continue the farm operation into the next generation, then it is critical that the farming child retains majority ownership of the farm. If you split your farm evenly between all of your children, there is a good chance your farming child will not have enough assets to buy out their siblings. Rather than risk breaking up the farm, consider other options to provide for your non-farming heirs. You can provide for children not involved in the farm business with life insurance, other family assets, or structured buy outs that don’t impact your farms’ cash flow.
4. Plan for Retirement.
As the older generation you need to decide how you will spend your retirement. How much money will you need each year to live comfortably? Where will your income come from once you retire?
If you want to continue to receive income from the farm you will need to plan how much you can financially support yourself and your new operator. You may want to consider options like phasing yourself out of the farm over several years, allowing you to draw a livable income from the farm while also providing for your new operator’s family.
5. Don’t Forget About Transferring Management.
Many farmers make the mistake of creating a succession plan that focuses only on transferring land and equipment, but what about all of the knowledge and relationships you’ve built up over the years?
Your successor will need time to learn about all aspects of the farm business. How can you produce the most profitable crop? How do you fix farm equipment? Who to work with for inputs? How to manage your farm books? It is important to slowly transition management of the farm to your successor. Start by allowing them to make small decisions and work their way up to bigger decisions.
6. Plan for the Worst… Hopefully It Doesn’t Happen.
If something were to happen to your first choice successor do you have a backup plan? Farm succession planning is full of “what-ifs.” What happens if your daughter gets married and her husband wants to farm? What happens if your son gets disabled and is no longer able to farm? What happens if your daughter decides farming just isn’t for her?
You need to plan for every eventuality. Make sure you have a plan (and a conversation with your family) about what you will do if something happens to your first choice to take over the farm.
7. Review your plan annually.
A farm succession plan should be reviewed annually, if not more. Much like your overall farming operation, your succession plan should grow and change as your farm does.
Set calendar reminders to revisit your plan. A simple calendar reminder every year to review your farm succession plan will help you stay on track.
Help Secure the Future of Iowa Agriculture
Farmers have worked hard their entire lives to build successful operations. Here at Midwest Land Management, we are committed to protecting your farm’s legacy and securing the future of agriculture in Spencer and beyond. Contact us today to set up your consultation and let’s get planning for your farm’s future. Don’t wait until it’s too late.
Farm Succession Planning FAQs
Here at Midwest Land Management we get a lot of questions about farm succession planning. Here are some of the most common questions we receive and their answers.
Q: When should I start planning for farm succession?
A: You should start planning for farm succession TODAY. The sooner you have the conversation with your family and financial team the more options you will have. Once a farm owner becomes seriously ill or passes away unexpectedly chances are you will rush the farm transition. Not properly planning for retirement and farm ownership transition can leave your family broke and broken.
Q: Do I have to leave my farm to all of my children?
A: Absolutely not. When it comes to farm succession, “fair” does not always equal “equal.” Splitting your farm equally among all of your children is usually a great way to ruin the farm. If you split your farm up, your child that wants to continue farming will likely not have enough assets to buy out his or her siblings.
Rather than endanger your farm operation, it’s best to keep the majority of the farm in the children that will continue farming. There are always other options for providing for your non-farming children. You can provide for your non-farming children with life insurance, other family assets, or structured buy outs that don’t impact your farms’ cash flow.
Q: Who should be involved in my farm succession plan?
A: As previously mentioned, you should have an agricultural attorney, CPA or financial advisor, ag lender, and farm management specialist helping you with your farm succession plan. These four professionals should work together to help you navigate the often complex world of farm succession.
Q: How can I transfer management of the farm to my successor?
A: Building off of number 4 on this list. You should slowly transition management of the farm to your successor. Start small by allowing them to make small decisions on the farm. As they prove they can handle the smaller decisions it’s time to allow them to make bigger decisions. Why rush the process? The more time they have to learn about all aspects of the farm the better prepared they will be to take over once you decide to retire.
Q: What if something changes after we create a succession plan?
A: That’s when you need to review. Review your plan annually. Plans need to be edited and changed as your farm and family change. Whether it be a birth or death in the family or your farm’s financial situation changes dramatically, you need to make sure you revisit your plan to make sure it still aligns with your goals.