Traditional Method of Farm Succession Planning is Broken…. Here is How to Fix it.
Part I-Reasons Plans Do Not Get Established.
(Authors’ Note: This will be a several part series discussing why the current method of farm estate and succession planning is not working. In this first part, we will discuss the current state of farm succession and estate planning and compare to where it was ten years ago)
After several years of the farm economy in the doldrums, that past 2 years have seen a reassurance leading to record land and machinery prices, as well as just about everything else. Prior to this, many farms were not even sure they would survive long enough to need a succession plan. Now, we’ve returned to where we were around 2009, 2010, and 2011, when the size of farm estates grew greatly and made it very difficult, if not impossible, for farming heirs to buy out non farming heirs due to the large capital outlay. With land and machinery at all times highs, the difficulty is even now more profound.
The problem is compounded in that farm succession planning and estate planning is an area where the farming industry has done the same thing over and over, which is “not much”. If you want the next generation to farm, you better have a solid plan, or the next generation ends up in the NFL (Not Farming Long). However, it appears that the farming industry is still entrenched in a “do nothing” mentality that one can only surmise prohibits scores of young farmers from being able to farm in the future.
Allow us to explain in more detail the “do nothing” mentality that permeates through the industry. Recently we traveled to Iowa to receive training by way of the International Farm Transition network. (IFTN). Every so often the IFTN offers training to become a certified farm transition specialist. John had taken the training about 10 years ago when we were in a large upswing with the farm economy and transitioning farms in light of the ballooning size of farm estates was on a lot of people’s minds.
At the training 10 years ago, there were some very alarming statistics that were given based upon recent farmer surveys. For example, it was said that 75% of all forms in this country did not have a plan with a successor identified. Also, the survey showed nearly half of farmers had no retirement plan. More so, about 40% of farmers relied on a family member for retirement advice (great if you have a financial advisor in the family, not so great if you do not), and about half of farmers intended to farm past 70 years of age. Also, around 85% of farms were not organized as any legal entity like a corporation or LLC.
Fast forward to the training a few months ago, and it was stunning that data from updated surveys showed that 75% of farms still did not have a plan identifying a successor, half of farmers still have no retirement plan, the number of farmers relying on a family member for retirement advice was now over 50%, and still 85% of all farms were not organized as a corporation, LLC, or other type of legal entity. (Note: studies how 86% of all non-farm businesses are organized as a corporation, LLC, or other type of legal entity).
he fact that in 10 years the estate and succession planning needle has not moved was shocking. Actually, in some instances, it has gotten worse. But why? Why is it that farmers spend their entire lives pouring everything they have into their farming operations, yet skimp on establishing a succession plan? Why is it that a much higher percentage of non-farm family businesses do have succession plans? There are a lot of questions surrounding the current state of farm succession planning, but not a lot of answers.
In closing, the next ten years are going to be pivotal as to farm succession planning just from the standpoint that the average age of the farmer is now 65. Just look at the number of farm retirement sales we are currently seeing if you don’t believe this. Factor in that half of the land in this country is owned by someone over 70 years of age, three-quarters is owned by someone over 50 years of age, we are going to see a radically different landscape if the farming industry doe not start to act upon and implement succession planning.
John J. Schwarz, II, is a lifelong farmer and has been an agricultural law attorney for 16 years and is passionate in helping farm families establish succession plans.
Natalie Boocher is a long time farm elder law and Medicaid planning attorney helping farmers protect their farms from the nursing homes and Medicaid.
Both can be reached at 574-643-9999 and www.thefarmlawyer.com.
These articles are for general informational purposes only and do not constitute an attorney-client relationship for specific legal advice. .