Farm Table says:
This article opens by presenting two different family situations.
Successfully transitions management responsibility for a 220-cow dairy farm by transferring the farming operation to a limited liability company (“LLC”) and selling the LLC to their on-farm son age 30. Dad agrees to work for another 10 years. Savings from his employment and proceeds from the sale will fund Mom and Dad’s retirement. Mom and Dad anticipate that on their death, they will have assets remaining to provide an inheritance to both their on-farm son and another son – currently age 27, who works off the farm.
The second family owns and farms a large cash crop farm. Dad is 68 and has always been an iron-fisted manager. Their oldest son – age 39 – has worked on the farm for 20 years, but also owns other lands on his own. Several other children have left the farm. In 2001, Dad promised the on-farm son “5% of the farm” for each year he worked. They briefly discussed this arrangement a few times since but never implemented a written plan. Dad never formally transferred farm assets to his son. Last year, Dad announced his retirement. The on-farm son is concerned that his lack of formal ownership in the farm is a risk to his family’s security. After several heated arguments, the on-farm son quits. He concentrates on his own farming operation. Dad is left without his principal farm manager, unable to retire, and with a damaged relationship with his son.
The article then goes on to discuss the factors that contributed to both the success and failure.
What does a succession plan involve?
A comprehensive plan has several parts, including:
- Effective estate plans for the family members involved
- Comprehensive business organizational documents (e.g., properly-formed corporations or LLCs, with “buy-sell” provisions that address the transfer of ownership in the business in the future)
- Purchase and sale agreements.
What are the steps involved?
- Talk to each other
- Gather information
- Talk to your advisors
- Develop a plan
- Revisit the plan