Family Farm Business Structures | Livelihood & Legacy Part 2
By Amanda Smith
In the first article in this series, we addressed the issue of fairness, and how that impacts the residual profitability and sustainability of a family farm. In this installment, we will take a look at various business structures and their benefits and challenges as it relates to transitioning the family farm from one generation to the next. According to the 2014 USDA Family Farm Report, about 32% of farm operators in the U.S. are at least 65 years old. This translates to 1/3 of the family farms in this country facing imminent transfer of management and ownership in the immediate future.
You may be asking yourself the question “When do I need to begin thinking about how my farm will transition after my retirement or death?” The answer to that question is variable based on your particular family situation, but generally you should be addressing succession planning around the time that your children reach adulthood and are making major life decisions.
If you have a child who has shown interest in the family farm all along, and they are preparing to enter college, perhaps a discussion should happen about their choice of major as it relates to the farm. What is going to be needed in terms of personnel in your operation, and what are the strengths of the child compared to the current managing generation?
If marriage appears to be in the near future for a child, you may want to consider the ownership of farm assets and protecting them in the unfortunate case of death or divorce. The National Center for Family and Marriage Research at Bowling Green State University estimated in 2012 that about 10 in every 1000 farm couples divorce each year, and because there are many issues of property ownership, retirement distribution, debt responsibility, inheritance, and child custody with farm seasonality, these divorces can be cumbersome, expensive, and incredibly destructive to both the operation and family relationships.
I hate to use this old cliché, but when it comes to farm succession and estate planning, failing to plan can most definitely by planning to fail. The business structure chosen for your particular operation can greatly impact the way assets are owned and transitioned from one generation to the next.
While you should certainly consult with your advisors prior to making any decisions, this can give you a simple overview of the options and how they impact succession planning.
“In this world nothing can be said to be certain, except death and taxes.”
While you process through each of these business structures and their implications for your own family’s farm operation, look forward to the next issue of this series which will address tax implications as they currently stand for transferring farm and land assets.