Farm Horizons, April 2016

Farm succession planning: where to start

By Marie Zimmerman, Correspondent

When it comes to farm succession planning, one of the biggest mistakes families make is putting it off.

Gary Hachfeld, a University of Minnesota Extension Educator in agricultural business management, has found a “scared straight” approach is sometimes the best way to inspire farmers who are slow to start. He has horror stories about acreage lost to taxes after death or family feuds ending with hefty legal fees.

“You’ve worked hard to build this up. In order for this to continue, unfortunately a handshake won’t do that, or saying, ‘Don’t worry, someday this will all be yours.’ That doesn’t cut it today. It has to be put into all legalized documents,” Hachfeld said.

During the last 12 years, Hachfeld has traveled Minnesota and its neighboring states to lead workshops about farm transition planning, reaching more than 6,000 people. He also helped author a 12-part series on the topic, available free online. In his experience, farmers are aware they need a plan but still wait to start.

“The first mistake is thinking and talking about planning, but never really setting aside any time to plan,” Hachfeld said.

It’s understandable, since the process can be intimidating, said Shawn Meyer, an instructor in farm business management at Ridgewater College in Hutchinson.

“It’s easy to (put off) because a lot of times, it’s just like, ‘How do we even begin? Where do we start?’ It’s a big deal and there’s a lot to it,” said Meyer, who has seen an increase in interest in the topic in recent years.

Get started

It can take anywhere from six months to three years or more to complete farm transfer planning, Hachfeld said. Variables including scheduling professional services, such as an attorney, and the willingness of family members to devote time to the project.

To keep from getting overwhelmed, families can start with a simple discussion about what everyone feels should and should not happen to the farm and its operators.

Meyer helps his students put together lists of personal and professional goals in the short term, intermediate, and long term very early in the process.

Start with the desired outcomes, and save the more technical details for another meeting, Hachfeld said.

“The role of the farm family is essentially to discuss as a family what their values are, and out of that comes what their prioritized goals are . . . If the farm family starts trying to fit all (the legal) pieces together, they’re going to get so confused and frustrated that they’ll quit right there,” Hachfeld said.

For those who want general guidance, University of Minnesota Extension staff lead farm transition and estate planning workshops that cover concepts, techniques, strategies, and procedures. The workshops are sponsored by community businesses and organizations such as attorneys, insurance agents, and financial planners. Hachfeld said farmers can keep an eye out for local opportunities, which are promoted by the sponsoring organization in its community.

For more individualized help, farm business management education programs offer farm succession planning curriculum.

“That’s one of my big roles I see is to keep the ball moving. Everybody talks about doing [farm succession planning], everybody wants to do it. The ball gets dropped sometimes,” Meyer said.

Farm business management is administered through eight college campuses at 85 different sites across Minnesota. The program is designed to provide education to farm owners and operators, or persons interested in farming.

Enrollment in farm business management includes 10 credits over the course of one year. Tuition varies slightly by institution, but at Ridgewater College a year in the program costs $1,721, and essentially pays for a block of time with the instructor to cover the learning needs of the individual farmer, which can be customized to include farm succession planning. Enrollment is possible at any time during the year.

With dedicated help from an instructor, Meyer finds the process takes from 1.5 to two years, depending on how complicated the farming operation is. It can be completed sooner in the case of illness, a small estate, or a family that is very motivated to move quickly, he said.

Hire professional help

Because of the legal documents needed and the financial implications to consider, a farm transfer plan will have to involve a team of professionals – an attorney, accountant, financial planner, banker, insurance agent, and possible others.

“A will or trust, power of attorney, health care directive, and HIPPA designations, those are things that are extremely formal. They are legal and do require legal work to be done,” Hachfeld said.

When Meyer has finalized a plan with a farm family, his next step is to bring in a tax accountant, followed by an attorney.

Some farmers balk at paying for professional help, but Hachfeld called the cost “a spit in the ocean” compared to the overall net worth of the farm and the assets to be preserved.

Ask tough questions

While much of the focus in transition planning is on assets, Hachfeld encourages both generations to look seriously at transferring the management of the farm.

“That’s the difficult part,” he said.

The exiting generation must honestly assess its readiness to cede the reins, and the incoming farm generation should consider, “Do I have the managerial skills to take over the management of the business? Where do I go to get help understanding record keeping? Who’s going to do the record keeping?”

Involving non-farming heirs and all spouses in the planning is another key, giving everyone a chance to share what they want or don’t want with regard to the family farm.

“Not that we’re going to be able to necessarily give them all that, but at least they’ve had the opportunity to express that, for their opinion to be valued,” Meyer said.

While the process of farm succession planning sometimes feels like slow going, Meyer encourages families to stick it out.

“If you keep going, we’ll get there,” he said. “It’s just really complex and it’s difficult and it’s challenging and I love having this big scattered mess puzzle when I show up and we slowly piece this thing together.”

And the hard work pays off. Hachfeld’s Extension workshops are followed by an evaluation six months later. In 11 years of collecting data, attendees have reported nearly $5 million dollars in assets they preserved or protected because they put together a plan.

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