It is not unusual for a farmer to have 90% of everything they have tied up in the farm’s operation. I am not talking about whether or not you own it or the farm owns it or even if the farm corporation or partnership owns it.
What I am saying is that you probably have very little cash that is not going to be needed to run the farm and all your other assets are being used by the farm to generate income. So what will happen to your family, your partners, your family members, and even the farm itself when you die, prematurely of course.
Whether or not everything you, and perhaps your parents before you, created will come apart or not will be the result of the plans you are making today. Naturally each situation is unique, however there are only three possible options available to you when creating your farm’s plans for the future.
One option is to simply sell the place, liquidate the assets by selling everything individually. You have been to dozens of farm sales so you know what I mean.
Selling the farm one asset at a time, the auction method, will only return you a few cents on the dollar for all the assets, except maybe the prime farmland or the development-ready land you own. Think about it, when you go to a farm auction do you go there to see just how much money you can pay for something? Of course not, and neither will your neighbors when they come to your family’s sale.
Another option is to sell the entire operation as a going concern. An example of this would be a fair-market sale to a neighbor’s son or to the farmer down the road.
The final option, the preferred option for most farmers of my experience is to pass the farm business to the next generation, a son or daughter, along with their spouse and non-farm heirs, so the farm can continue on as it has for generations.
Passing down the farm is everyone’s dream, having the business carried on by a son or daughter with mom and dad on the front porch watching over them, or maybe on a cruise checking the web cam dad set up in the barn so he can still check on the milking from half way around the world.
Here are some of the important questions that demand answers before serious steps toward the ultimate transition of the farm should be taken. Can your offspring run the place? Will your banker and trade creditors trust their judgement if you are not there to back up their decisions?
What about your key employees, will they stick around and work for your successor or will they take off right after the funeral? How do you know? Can they work for your kids? For that matter can your kids work together? What if there is only one successor on the farm and all the rest have no interest in running the business, just in getting their “fair share” of the inheritance?
Can you see any problems here? Is it possible that the heirs will want their inheritance at the same time the government wants its taxes, and the hospital wants its money and the banker wants to clear the current notes before loaning money for next spring’s planting or feeder stock?
Do you think anyone not getting their “fair share” in cash and right away will be bitter and make it hard on your kids and your spouse? A no cost no obligation conversation with your farm insurance agent who’ll tell you about the actual behavior of otherwise really nice people, can be an eye opener.
Will there be enough cash flow to pay off the non-farm heirs, the bank, etc. and pay your successors and key employees to run the place and still have income security for the rest of your dependent family? If it turns out that either there isn’t anyone in the family who can run the place, or the kids can’t work together, or there is not enough cash to pay them off and still continue to farm, then maybe you’d be better off just sell the place.
The only question is who will set the price and the terms and whether or not your family will receive the greatest value for your years of hard work. There is one way to make sure in advance that your interests are protected, a Buy & Sell Agreement.
Farm insurance agents have arm loads of sample agreements and access to the most creative minds around who will consider your situation, what’s important to you, and help you and your family create a process that will insure that the terms of the agreement will be kept and that the farm and your family’s security will be protected.
Remember, this is a business and if you want it to succeed after you’re gone you have to begin laying the groundwork today.
About the Author:
If you want to be even more successful in the future than you are today, a b2b mastermind group will show you how stay focused on what’s important. Connect with your peers via your own Internet conference call. Combine a traditional conference call with a Power Point presentation, run Q&A, share handouts, and record it all for instant playback.
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