Planning the Future of Your Farm: What is Farm Transition/Succession?

Planning the Future of Your Farm: What is Farm Transition/Succession? Andrew Branan, JD North Carolina Farm Transition Network

File this away… 70% of rural land will change ownership over the next 10 to 15 years - David Kohl, Virginia Tech

NC Farm Succession Survey

Purpose of this presentation? <To find out what’s on your mind>

ADFPTF Funding Cycle: An opportunity!<for us to learn> • What kinds of applications are going to come in? • Permanent of Term Easements? Programs? • Will the “easement” applicants have identified successors? • Will a “transition (succession) plan” be provided with the application?

“Protect that <open-spaced> Farm!” • Keeping good soils available for agricultural production is a public good <sure, why not> • If good soils are used to grow crops or livestock that generate income, we can call it a “farm” <or, you could just call it “open space”> • We may protect good soils, but only landowners that want to and plan to can continue or create a farm <whatever, just give us the money for the easement>

ADFPTF “Transition Plan” • Goal of ADFPTF: Help farms stay in business • Tool depends on the goal (term or perm?) • With no plan to keep land producing into next generation, is this a good public investment? • No clear definition on application

NCFTN “Transition Planning” Acknowledge that the land is going to change ownership, that the resource is going to change management, that the business of farming will continue to change, and that decisions must be made as to what you are going to do with all of it.* <*why is your family submitting this application?>

Remember: It’s just a plan • A description of what you are doing now to create the future you want (now). • Not a guarantee of what the future will look like. • A recognition that priorities do change • An integration of short-term and long-term decisions • Gives the next generation direction

Necessary Elements • Business Planning: How will the “farm” produce income in the next generation? • Management Transition: Who will manage this resource? • Income Planning: How will income be divided? • Estate Planning: What is done to secure tenure in the next generation?

Business Plan: Will it be a “farm”? • What has the business of the operation, and how has it changed under current management? • What is the longer term vision for the business as it will be operated by the next generation? • What ideas has the next generation brought to the discussion? Are they part of the plan. • Easy enough to say, but has one been done? (seek available resources)

Management Transition: Who decides? • What steps are being taken to increase management effectiveness of successor generation? • What is the next generation doing now? • Are they managing a part of the operation? Their own business? • Is there need for a complex legal structure?

Financial Security: Does everyone have enough? • What is the plan of income distribution of the operation/land resource? Is there enough for everyone? (ie. enough farm income, off-farm income, income for retirement, health care, younger generation’s career) • Operation receipts, rents, etc. • How do conservation (easement) payments figure into this equation?

Estate Plan: Who gets what? • The plan for distribution of assets when the owner passes on • Can include lifetime gifts, intents to transfer by sale • Does the plan lead to secure tenure/ownership for the successor generation? • Fair vs. Equal (farm vs. off-farm)

Identifying Challenges and Risks • Acknowledging andrecognizing foreseeable challenges • Identifying possible risk management solutions • For example, the Five D’s • How does the conservation easement address these challenges (cash money, restriction on subdivision, conservation, etc.)?

Risk Sampler: the Five D’s • Death: parent, spouse, key manager, major investor • Disability: loss of labor/management, cost of long term care • Disaster: loss of crop/buildings/equipment, unexpected creditors • Divorce: loss of labor/management, division of assets • Disagreements: destroy business arrangement, damage family

This is process… • Discover what you want in life… • Discover what your family wants… • Discover how much you are worth… • Discover your farm’s potential… There is no quick fix or magic bullet, it’s hard work (but ultimately rewarding)

Major Issues in Planning • Lack of successor interested in farming • Too many heirs interested in the estate • Limited business viability (not enough income or expansion opportunity) • Limited retirement plan, limited insurability • Healthcare costs (long-term care) • Time (easy to put off) and transaction costs • Lack of professional resources in locality

Planning Structure • Assess personal and family values • Define personal, family and business goals • Establish objectives for achieving goals • Evaluate strategies to meet objectives • Implement tactics Beginning Farmer Center, Ames, IA

What do you value? • Keep the farm “in the family”? • Pass along business opportunities to your children? • Pass along wealth to your children? • Keep your family together? • Have a lot of money? • Financial Security? • Good health? • Pass along opportunities/wealth to your community? • Legacy as a good land steward? Planning the Future of Your Farm workbook p. 18

Values Support Long-term Goals • Keep the “Farm in the Family” (for example) • First, does this meet your other values? • Develop and grow a viable business • Identify and develop a successor • Secure your retirement and lifestyle • Be fair to successor and off-farm heirs Planning the Future of Your Farm workbook p. 13

Goals are achieved by shorter-term Objectives • Develop and grow a viable business • Growth targets (Growth rate of 5-6% per year) • Identify and develop a successor • Performance measurements • Management transfer benchmarks • Secure your retirement and lifestyle • Income goals and secure sources • Be fair to successor and off-farm heirs • Communicate a distribution plan all understand Planning the Future of Your Farm workbook p. 13

Strategically meet Objectives: • Expand operation • Diversify operation • Manage risks (legal, environmental, etc.) • Develop successor • Secure land tenure (leases, good sale terms, etc.) • Control alienability of ownership (farm assets) • Use insurance (crop, life, etc. etc.) • Etc.

Choose Your Tactics • Estate Plan (wills, trusts, titling of property, etc.) • Business Entities (management, income, ownership) • Employment arrangements (benchmarks) • Tenure arrangements (leases) • Farm production, marketing and management plans • Conservation programs (additional income)

Communication: The Family Meeting • Provide information to family members • Clarify values, goals, decisions • Get input from family members • Help family members accept your ultimate decisions • Eliminate basis for suspicion • Reduce threats to long term vision

Planning the Future of Your Farm workbook • Worksheets/narrative to start the process • 2006 edition available for download at www.ncftn.org • 2007 edition in development

Contact Information Andrew Branan, JD P.O. Box 443 Hillsborough, NC 27278 919 619 8479 cell 919 732 7539 abranan@gmail.com · www.ncftn.org

Planning the Future of Your Farm: What is Farm Transition/Succession?