Farm business transition requires careful consideration. These questions help.
This is part two of our list of questions that can help you decide if the time is right for a farm business transition.
- Are the parents willing to provide security to the entering parties by agreeing to a buy/sell agreement and allowing the entering party the right to purchase assets in the future? The agreement should be binding on other heirs.
- Are the parents willing to sell, lease, gift or otherwise transfer assets to the entering party at perhaps less than current market values?
- Are the parents not only willing to transfer farm assets but are they willing to transfer management of those assets to the entering generation?
- Are the parents willing to eventually move to town or to a residence off the farm to allow the new manager to be nearer the center of farm operations?
- Can and will both parties put together a tax plan which will be acceptable to everyone as they transfer assets?
- Are the parents insurable and will they permit the younger generation to carry life insurance on them for financial protection in case of premature death?
- Are all parties willing to provide protection from premature pay out to off-farm heirs by establishing purchase options with installment terms for sale of assets in their Will or trust?
- Are all parties willing to pledge that they will not try to control any aspect of the other parties’ business and personal lives?
- Are entering children willing to pay parents adequately for work done on the farm after retirement?
- Are entering parties willing to sacrifice standard of living and go the “extra mile” with work to get started farming?
- Are entering parties appreciative of the farming opportunity given to them by their parents? Are they willing to “give and take” to make the transfer process successful?
- Do the entrants wish to farm because they have prepared for it educationally and feel it is their chosen field? This is in contrast to those who enter farming because they can't find anything else to do, or nothing else worked out, or it is an expectation of their parents.
- Do the entering parties have a realistic grasp of current agriculture and what it takes to put together a profitable, competitive business?
If you can answer "Yes" to these, you should look for my next blog and a few more questions. If you answered "No" to any question, you may wish to evaluate the situation before you proceed. Remember the value of fee-only, fiduciary financial planning advice during this process to help you answer these questions. Often outside perspective can be very helpful.
If this article has you thinking about your own circumstances, contact my office at firstname.lastname@example.org. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.