Succession Planning for Farmers
Succession Planning for Farmers
Farmers deal with a unique set of challenges. One of these challenges includes succession planning. A succession plan is the process of the transfer of ownership, management, and interest of a farm. When should a farm owner have a succession plan? A succession plan is required throughout a farm’s survival, growth and maturity stage.
We have highlighted the main points to address when starting a succession plan.
- Determine your objectives- what do you want? For you, your family and your farm.
- What are your shares of the farm corporation worth? (Farm value)
- What are your personal financial needs- ongoing income needs, need for capital (Example: pay off debts, capital gains, equitable estate)
Two sets of events can trigger a succession plan: controllable and uncontrollable.
: Who do you sell the farm to?
- Family members, the younger generation
- Outside Party
- Each has advantages and disadvantages- it’s essential to examine all channels.
- Make sure you utilize your lifetime capital gains exemption.
: When do you want to retire?
- What are the financial and psychological needs of the farm owner?
- Is there enough? Is there a need for capital to provide for retirement income, redeem or freeze shares?
- Does this fit into personal/retirement plan? Check tax, timing, corporate structures, finances and family dynamics. (if applicable)
: A disgruntled spouse can obtain a significant interest in the farm.
- What portion of farm shares are held by the spouse?
- Will the divorced spouse consider selling their shares?
- What if the divorced spouse continues to hold an interest in the farm without understanding or contributing to the farm?
- If you have other partners/shareholders- would they consider working with your divorced spouse?
: If you were disabled or critically ill, would your farm survive?
- Determine your ongoing income needs for you, your spouse and your family. Is there enough? Is there an insurance or savings program in place to make up for the shortfall amount if there is a shortfall?
- Will the ownership interest be retained, liquidated or sold?
- How will the farm be affected? For example, does the farm need capital to continue operating or hire an employee to run the farm? Will debts be recalled? Does the farm have a savings or insurance program to address this?
In the case of your premature death, what would happen to your farm?
- Determine your ongoing income needs for your dependents. Is there enough? Is there an insurance or savings program in place to make up for the shortfall amount if there is a shortfall?
- Will the ownership interest be retained, liquidated or sold by your estate? Does your will address this? Is your will consistent with your wishes? What about taxes?
- How will the farm be affected? Does the farm need capital to continue operating or hire an employee to run the farm? Will debts be recalled? How will this affect your employees? Does the farm have a savings or insurance program to address this?
Make sure you have a succession plan; we can help you with this. Besides having a succession plan, make sure you have an estate plan and buy-sell/shareholders’ agreement.
Contact us to help you get your succession planning in order so you can gain peace of mind that your farm and family are taken care of.
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