Passing The Torch: Transferring Your Farm To The Next Generation
As a farmer, you know the time is coming (or has already come) when you’ll need to hang up your hat and take life a bit easier. You’ll not be quite as quick on your feet, the winter’s chill will be harder to shake and your back just won’t be able to take those hay bales like it used to. It’s called life and it happens to us all.
But when the time does come and you are ready to pass the torch to the next generation of your family, you need to make sure all your T’s are crossed and your I’s are dotted from a legal standpoint and do so in such a way that neither you nor your successor will take too big a hit in regards to taxes.
For details in regards to the most advantageous ways to disperse and transfer ownership, the following websites provide a wealth of information: www.irs.gov or www.omafra.gov.
Depending on how you have your farm set up (sole proprietorship, LLC, inc.), you’ll need to decide what transfers of ownership should take place, whether you’ll retain any ownership or ‘say’ in how the farm is run and so on.
So when preparing to pass ownership and management of your family farm on to the next generation, you need to consider the following:
- Who will take over? Do you have more than one child, grandchild or other family member who currently works with you or plans to take over? Will the farm remain a sole proprietorship, LLC? If a partnership is going to take place, everyone involved needs to sit down together and pre-determine what the chain of command will be.
- What about other family members? You know-the ones who care nothing about the farm business? It’s understandable that you don’t feel obligated to deed or will them part of the farm, but what, if any, restitution will be made to make things fair? Again, this is something you need to pre-determine. DON’T leave it for the kids to decide once you’re gone.
- Unlike most other businesses, your farm is most likely where you live. If son, consideration needs to be made in regards to where you will live after retirement. Will you continue to live there? If so, who will be responsible for taxes, utilities (if the farm buildings aren’t metered separately) and maintenance/upkeep on the house? Or, if you retain ownership of the house and a portion of the land, provisions need to be made for what happens to the property after your death.
- How will the transition take place? Will the take-over be gradual? This will often depend on the circumstances of your retirement, the pre-involvement of the one(s) taking over and so on.
- What will be sold, given or transferred? Land, equipment, livestock, debt?
When transferring ownership of the family farm, it’s often difficult to be both dad and business owner. Emotional ties to the years invested in your farm, the ‘responsibility’ of keeping everyone happy and dealing with no longer being the boss are all huge adjustments to make. That’s why passing the farm to the next generation needs to be done legally and with a great deal of communication between all parties involved. But remember, it’s your farm and you need to be comfortable with the process, because unless you have a child or children that have worked side by side with you since they could walk, it’s your business to do with as you please.