What is Farm Estate Planning?
Also known as farm estate succession, or transition plan, is essentially a family’s game plan for when family member’s pass away. Preparing a rural land estate plan ensures your farm stays fully operational and profitable in case of death. It’s documentation preparing agricultural families for the purchase or sale of their farm business in the case of the current owner passing so other family members can abide by the decisions outlined from the deceased. Just like any other estate plan, a farm, ranch, or cabin estate plan protects your properties while also directing family members or personal representatives how your Colorado business assets will be distributed if something happens to them.
Understanding Farm Succession Planning
Even though it may be difficult, finding time to openly speak to your family about succession/estate planning for your farm is essential for the success of your family legacy. Just like any other will and testament, the thought of having to plan for such an event may be quite uncomfortable and disheartening. The thought of also selling or handing over your ag land or farm to someone else may be discouraging too, but it is crucial to at least have a solid plan in place to be prepared for anything.
As we’re sure you’ve heard many times thus far, there’s only two things in life that are guaranteed: death and taxes. Since we must all accept the inevitable, developing a farm succession plan for your family business should be made a priority. As our land transfers to its next generation of ag leaders, documentation will help ensure that your family’s wishes are met, and to minimize the emotional stress of your loved ones.
What You Should Know Up Front About Farm Estate Planning
Farm transition or estate plans primarily focus on the future of the farm. When you decide to retire, or are ready to create your farm estate plan, you should be thinking about the following pieces to create the best plan for your business:
Transferring or selling ownership to a vested family member. To non-farming heirs, you may leave equal settlements of money, stock, or other assets to keep your decision fair.- A curated plan to keep the farm in one operational piece even if assets are limited like:
- Outline a plan for providing the non-farm child(ren) an equal share of non-farm assets
- Ensure non-farm family members are going to be able to buy the others out so farm operations continue
- An ownership back up plan is set in case assets run out and the farm becomes no longer profitable
- Notate your chosen qualified attorney who has expertise with ag families and can provide your family with options and techniques to accomplish this
- Organized outline to liquidate farm assets in specific manners such as:
- Auctioning off equipment, livestock or selling your land
- Renting or leasing your Colorado land and ag equipment.
- Selling or contracting the entire property.
- Be prepared for the possible headaches or risks like:
- Inadequate current or future cash flow
- Previously assigned liquidation of some assets for your retirement
- Unresolved family issues or a successor’s unpreparedness to lead and manage the farm business
- Not having a retained personal attorney, or professional who specializes in tax issues
- Not obtaining a viable banker to help with finance resources
- Not assigning a moderator or arbitrator to help with family discussions
- Hidden business financials that appear out of the woodwork
- An illegitimate backup plans
Determine the Desired Outcome
It’s not only important to ensure you are ready for all hiccups or problems that could occur, but it’s equally important to concentrate on the desired final outcomes of your Colorado farm transition. Among many other important questions, you should also ask yourself the following:
- What do my spouse and I envision for the future of the farm?
- Do I want to stay involved with the operation on a smaller scale after retiring?
- What amount of income do I need for retirement and/or health care costs?
- Am I being pressured to sell by those who don’t share your love of the land?
- Where do I see my family business in 50 years?
- Are there any non-negotiables I need to highlight in my plan?
- Do you have a farm trust and a succession plan for it?
- How am I going to keep the farm in one operational piece after death, even if there are not sufficient assets to provide the successor?
We highly suggest hiring qualified professionals who can help you make sound, unbiased decisions for your farm estate plan. Enlisting those who don’t have a stake in the final decisions and have year of knowledge and expertise in the notion is best thing you can do for yourself.
Farm Credit of Southern Colorado not only serves the local community with agriculture operating, equipment, real estate financing and farm crop insurance, we are also here to help our cooperative members with other business entities like farm estate planning. We have many Colorado affiliates and hook ups to whom we trust and to where you can feel 100% confident in our referrals for those alternative items. Give us a call today if you have questions about your own family’s farm estate succession, or transition plan. FCSC is your active partner in agriculture.
This blog post is for informational purposes only and should not be considered financial, legal, or investment advice. Any information contained in this post is subject to change without notice and should not be relied upon without seeking the advice of a qualified professional. The views and opinions expressed in this post are those of the author and do not necessarily reflect the official policy or position of our Association. The author and Association are not responsible for any errors or omissions and are not liable for any losses or damages arising from the use of the information contained in this post.