Farm succession planning: Start five to ten years out

By Brian Ravencraft, CPA, CGMA, Principal-Holbrook & Manter

Passing down a farm is more than a business transaction; it’s the transfer of a legacy. This process, known as succession planning, ensures the family farm continues to thrive for generations to come. Yet, many farmers delay this crucial conversation, often until it’s too late. I have seen it repeatedly throughout my career. This month, let’s look at why the time to start planning is now, and your accountant is a key partner in navigating the process.

Succession planning isn’t just about retirement. It’s a comprehensive strategy for transferring ownership, leadership, and operational responsibility. Starting the process between 5 and 10 years before you plan to step back provides the time needed to address complex issues without pressure.

Early planning allows you to align your personal retirement goals with the farm’s future. It gives the next generation time to develop the necessary skills and financial standing to take over. Most importantly, it opens the door for communication, reducing the potential for family conflict.

A good place to start is to evaluate family dynamics. A farm transition often involves multiple family members, some of whom work on the farm and others who do not. Deciding how to distribute assets fairly without compromising the farm’s operational integrity is a major challenge. Open communication and a clear, documented plan are necessary to manage expectations and preserve relationships.

The farm’s most valuable asset is often the land itself. Transferring land comes with significant legal and financial implications. Decisions must be made about whether to sell, gift, or place land in a trust. These choices affect everything from property taxes to the farm’s future borrowing capacity, requiring careful consideration and strategic planning. This is where your accountant and your attorney can work together to set you up for success.

A farm transfer can trigger substantial tax liabilities, including capital gains, gift, and estate taxes. Without a proper strategy, these taxes can place a crippling financial burden on the next generation, potentially forcing the sale of assets to cover the costs. Proactive tax planning is critical to minimize this burden and protect the farm’s financial health.

Remember, your accountant is a strategic advisor who can provide objective, data-driven guidance throughout the succession process. Their expertise in finance, tax law, and business structuring is invaluable.

Often, farmers wonder how to get started with actual accounting tasks. Often, we begin assisting you with retirement planning so you know how to step away with enough income to maintain the lifestyle you want without draining the farm’s resources. We also conduct financial analysis, examining cash flow, profitability, debt, and more, to gauge how viable the operation is for the next generation. From there, we can help map out succession planning strategies that benefit everyone involved.

If you have not started your planning journey and believe it is time to do so, be sure to reach out to your accountant. As always, if I can be of help, please reach out.

Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. Visit HolbrookManter.com.