Just a century or so ago family farms were considered the backbone of the American economy. Outside of major industrialized cities it was common to see almost nothing but farmland across much of the country. Unfortunately, the last century has seen the steady decline of the family farm as “industrial farming” took its place. There is still hope, however, for family farms as they have started to make a comeback in the U.S. in recent years. If you are a family farmer who plans on passing on the family farm to the next generation, have you considered what it will take to successfully accomplish that goal? A comprehensive estate plan that incorporates a business succession plan tailored to family farms will be crucial to deciding if your family farm makes the transition to the next generation or not.
Statistics suggest that less than 20 percent of all small businesses are successfully passed down to the next generation. Given some of the additional obstacles a family farm will like encounter it is safe to say that the odds are not in your favor if you plan to pass on the farm to children and/or grandchildren. Taking the time now to create a well thought out business succession plan will go a long way toward ensuring that your family farm beats the odds.
One of the most common problems a family farm faces after the death of the patriarch/matriarch is a lack of liquid assets. Farms and ranches are businesses that typically have the majority of their assets tied up in things such as land, machinery, livestock, or seed. This creates a probate nightmare because on paper the business may appear to be valuable enough to trigger a gift and estate tax obligation; however, the business lacks the necessary liquid assets to pay the taxes. Crucial business assets may then have to be sold, effectively shutting down the farm forever.
Another common bar to successfully transferring the family farm to the next generation is found in the failure to prepare the business itself as well as the new leader(s). Any business needs to have the proper legal structure for a smooth transfer – one that does not trigger excessive wealth transfer tax obligations. In addition, the new leaders of the business need to spend time actually running the business under supervision before the entire operation is turned over to them.
Passing down the family farm to the next generation can be done successfully; however, you need to start planning early on by creating a comprehensive estate plan that includes a well thought out business succession plan. If you have additional questions or concerns about estate planning for your family farm, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.