Some people think of the family farm as an operation run by mom and pop with a few children and seasonal helpers, but in most cases this is no longer the standard operation. The size and breadth of these operations have rapidly changed over the past few decades. Acreage growth, herd count, facility and environmental requirements, personnel needs, family dynamics and financial resources have made this industry and its farm operations far more complex.
The immediate family may not be the ones to assume management and control if the owner becomes ill or incapacitated. Death of the family owner can provide additional challenges besides continued operation of the day-to-day farming. How will ongoing operations be financed? Does the family need to raise money to pay estate or inheritance taxes? How will the farm be valued for estate-tax purposes? Who will take over the day-to-day management, and how will the ownership of the farm assets pass?
Farms can be made up of a variety of holdings including, but not limited to: automotive equipment, sophisticated farm machinery, feed, supplies, easements, real estate, insurances, investments, futures contracts, crop agreements, leases and herds. Sometimes these assets are held in separate legal entities such as partnerships, corporations and limited liability companies.
Who will become the ultimate owners, managers and operators of these assets and entities? The new owners or beneficiaries need not be the managers, employees or operators necessarily. A management committee, board or trustee group may be used to continue the oversight of the farm operations. Such a management group should be considered in advance of a death or related catastrophe.
The continuation of the farm in the family may be a significant priority, but a well thought-out strategy can greatly enhance the chances of success. Implementation of an agreed-upon contingency plan can achieve several objectives, including:
- Charting asset ownership and or transitional ownership
- Providing for management and continuity
- Establishing a plan for financial stability
- Planning for retirement
- Setting family goals and objectives
- Relieving the stress of uncertainty
- Providing for death or disability
Such planning takes some time, good communication with the plan participants, and usually some assistance from advisors who can become familiar with the family and business operations. The most important thing to do is start the process. Allowing family and advisors to understand your goals and assist you in achieving them will certainly provide for a less chaotic family transition.
Jack Capron is a principal based out of our Syracuse, NY office.