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Transferring your farm to the next generation

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BY STEVE MUSEN

Owen Extension Agent for Ag. and Natural Resources

The average age of farm operators in Kentucky is increasing, and over the next several years, many farm families will consider transitioning their farm to the next generation. The decision of when and how to begin the farm transition process can be difficult; often, farm families avoid the issue because it can be a difficult topic to discuss.
It is important to realize that at some point every farm business will experience a transfer of ownership, either with or without owner participation. The farm business can transfer in one of two ways: either as a viable farm business or as a set of assets. Typically, the goal of many families is to successfully transfer a viable farm business. But only about 30 percent of family farm businesses successfully transfer to the second generation, with less than 10 percent successfully transferring to the third generation. The majority of failures occur following the owners death due to limited foresight, planning and capital. However, with proper planning and family communication your farm business is less likely to become a failed statistic.
Creating a will or an estate plan is a step in providing a way to distribute assets. However, a comprehensive farm transition plan takes a more in-depth look at the farm business. For many with a family farm, the primary goal of a comprehensive plan is to facilitate the transfer of ownership and management of the farming operation. However, transition planning is also a tool to reduce estate taxes, help secure the financial future of both the new and retiring generations, develop management skills, and to establish goals for your farm, such as keeping your land in agriculture. Ultimately, a sound farm transition plan can provide peace of mind about the future plans for your operation.
Good family communication is one of the key factors to a successful transfer. Farm family transitions are typically smoother if heirs can provide input and when family members have a shared vision. You may find it difficult to treat all heirs equally during the transition; however, it is possible to treat all heirs fairly. Good communication can help both on-farm and off-farm heirs understand the reasoning behind decisions. Each family is unique, and it’s important to be conscious of the relationships between heirs and spouses, as well as the family business needs.
To ensure your goals for the family farm reflect the vision of other family members, the first step is to schedule a family meeting and start an open dialogue about the process. A good family meeting typically takes place at a neutral location, not at the kitchen table or in the barn. Everyone needs to feel comfortable enough to share their opinions. Additionally, do not try to tack a family meeting onto another family event such as a holiday dinner. Schedule it just as you would other important business meetings.
During the first family meeting, begin a conversation about transitioning the family farm. Talking points to start the conversation include discussing how each heir perceives their role on the farm. Talk with them about what role they would like to play during the transfer process and ask them about their goals for the future of the operation. Find out if your goals are similar to their future goals.
Once you begin the dialogue, you can address more detailed issues and key questions. You may find it helpful to work with a transition team to develop and implement the plan. Team members may include a facilitator, accountant, attorney and an extension educator. Each member of the team can provide expertise in establishing a transition plan that will work for your family.