Transferring the farm: First focus on the 'what': Extension News
ST. PAUL -- Many farm families struggle with where to begin when transferring their farm business to the next generation. Many start by focusing on the "how" of the process: Should we use a will or a trust? Do we need to form a corporation or is a partnership good enough? Should we transfer our land now to protect it from long-term care costs? What happens if our farm heir ends up in a divorce?
However, the key is not focusing on the "how," but rather on the "what" of the process.
Focusing on the "what" simply means discussing, listing and prioritizing your goals as your guide for getting to the "how." A few examples: What do we want from or for our farm business? What do we want for our family? What do we want for ourselves? And for the exiting parents, what do we want in our retirement?
To begin, each individual, parents as well as the entering generation including the in-laws, needs to think about and list goals. This should include people's high-priority goals for themselves individually, for their family and for the farm business. Examples might include owning 1,000 acres of land as an individual goal, having college costs paid for all children as a family goal, and maintaining the farm base and expanding when possible as a farm business goal.
Also include short-term goals that will support their long-term goals. Examples might include paying down debt as an individual goal, saving $10,000 per year toward the college costs as a family goal, and buying one new piece of machinery every year as a long-term farm goal.
Step two includes each couple, parents and entering generation separate from one another, working together to prioritize their long- and short-term goals.
Step three is for both generations to come together and blend their goals for the farm business, coming up with a combined, prioritized list. Think about which goals are most important for family well-being, business success and retirement. Which short-term goals, if attained, will help you achieve your long-term goals? Which, if any, short-term goals impede achieving a long-term goal? Which goals are so important that they should be attained -- even if they prevent you from reaching other goals? This goals list must be in writing -- with specific terms and timelines.
This list of goals is then the "what" of the process; you take it to your transfer and estate planning team to begin putting the plan into effect. However, the list is not final because situations change, so the goals need to be flexible and dynamic. Be prepared to change your overall plan if necessary.
Spending time on this process and communicating with others involved in the farm operation will yield great results. You will be on your way to a successful farm business transfer.
Gary Hachfeld is an ag business management educator with University of Minnesota Extension.