While lower prices have many farmers focused on their short-term profitability, succession planning is an important key to ensuring the longevity of their operations. Farmers should aim to balance both of these sides of on-farm finances to maintain profitability in the years ahead.
“Many pockets of the ag industry, in commodity crops especially, are tightening their belts right now,” says Paul Neiffer, certified public accountant and business advisor with CliftonLarsonAllen, LLC. “They’re getting ready to file taxes and looking at their financials, making this the perfect time to look more closely at estate planning.” In this episode of Profitability Matters, Neiffer shares his insights on succession planning and the best options available for farmers in 2016.
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- The biggest mistake in succession planning is procrastination.
- Succession planning should be a priority for farmers of all generations, not just those looking to retire.
- The earlier a farmer can create a succession plan, the better off they will be 20 or 30 years down the road.
- Advisors can also offer direction on decisions such as land purchases that will affect succession plans years or even decades later.
- Because succession planning is both a family and financial matter, parents should sit down with their children, discuss their wishes as a group and get put it into writing.
- Farmers can set up a limited liability company or partnership (LLC or LLP) during their lifetime for ownership of the land.
- That LLC will have all of the children established as owners, however at a smaller level at the beginning while the parents operate the farm.
- An LLC sets the farmer’s children as joint owners of the company—this is important because the children don’t need to directly deal with the land.
- The LLC’s operating agreement or a separate buy/sell agreement should outline in writing up front:
- What happens if one of the children wants to be bought out
- If parents’ wishes are for land to always stay in the family without allowing their children to cash in the investment
- Read more from Neiffer at Top Producer’s The Farm CPA blog.
Want to learn more? Stay tuned for the next episode of Profitability Matters, and read our previous posts for additional insights into farm profitability:
- “Cutting $100 per Acre in Soybeans” with Gary Schnitkey
- “Staying Ahead of the Curve in 2016 Finances” with Steve Johnson
- “Maximizing Crop Insurance Opportunities” with Keith Coble
- “Do the Math on Farmland Values” with Brent Gloy