Most family farm founders dream of handing down the operation to future generations—yet very few of these operations are successful in doing so. Transitioning a first-generation farm to future generations requires a good succession or ownership transition plan. Talking about and planning a farm ownership transition can be a stressful and confusing experience for many farmers. A successful farm transition plan accounts for several critical issues such as planning for shifts in management styles and techniques between generations, transitioning assets and ownership, and anticipating events that could change the succession plan entirely.
There are several ways that a succession plan can account for changes in management through the generations. One of the best ways to mitigate this is to develop a farm management team of diverse individuals. The farm management team should focus on developing managerial skills, emphasize cross training and education, have effective and consistent communication, and provide regular feedback to the rest of the operation. The farm management team should also consider what individuals are able to make decisions—which can be a complicated topic when there are various stakeholders to please. Another goal of the farm management team is to facilitate discussion and problem solving for when there are disruptions- for example, a premature death, a dissolved marriage, or simply fundamental disagreements on the future of the operation. The farm management team is also responsible for ensuring fair compensation for stakeholders, evaluating and appraising the assets and value of the operation, and encouraging retirement of senior individuals.
The second thing to consider is the transfer of assets and ownership. Typically, the first thing to transition is labor and income, followed by managerial power, and ending with the transfer of land and other assets. During discussions around asset transfer and ownership, it is important to consider the financial needs of both the predecessor and successor. There are a variety of different ways to transfer ownership including gifting the assets, selling them outright, a gradual sale or installment sale, a lease, or other options. Each asset has its own impact on cash flow and financial standing both during and after the transition, so the goal should be to make everything equitable and fair for all parties. The transference of land can be a bit different, with ownership options including partnership, gifting, contracting, tenancy, and others. The best way to know what transfer strategy is right for you is to consult with your financial planner.
Finally, consider events that may change the succession plan. Each party involved in a farm succession should understand that it will take both contributions and sacrifices to help maintain the operation into the future. COVID-19 is a great example of an event that impacted succession plans. Instead of a traditional, gradual transition of ownership, some operations had to transition quickly due to unexpected loss of a stakeholder. A carefully considered and well-established plan can help mitigate any issues with unexpected changes in the succession timeline and provides a framework for an effective transition.
UGA Cooperative Extension can help provide resources for those interested in evaluating an existing succession plan or preparing a new one. If you’d like more information, let us know at uge3181@uga.edu or 706-359-3233.
