“I have cancer.” Those were the words I heard on the phone from my dad on a frigid winter day in 2003. I was a junior at North Dakota State University and had been farming with my dad for the last six years. The plan was for me to take over after I finished college.
At the time, I didn’t realize it, but the unforeseen events about to unfold completely changed the direction of my life. Four years later, after putting up a good fight, my dad died. I harvested our crop in a daze, and at the end of harvest, I had a decision to make. Keep farming or find a new career path. I ended up choosing the latter.
My dad and I had several conversations over the years about how to transition the farm, but that was as far as it went. Simple conversations with nothing written down and no one else involved. There was no plan to follow after he died. Would a plan have kept me farming? Not sure, but a well-documented plan wouldn’t have hurt.
Most farmers today don’t want to think of their retirement or, God forbid, their untimely death and what happens to the farm they have worked so hard to build. Succession is about planning the future of the farm. It’s about conserving your legacy for your heirs to inherit alongside the farm. This usually focuses on leaving your farm to your children, so they can succeed as the next generation of operators and owners. This concept, while idealistic, is not always simple.
With everything farming entails, creating a succession plan is the last thing on many farmers’ mind. Over 70% of farmers have not identified a successor or even created a plan, which does not bode well for the future of the farm. Think about succession planning as raising a crop: It doesn’t happen overnight, and it takes a lot of small steps from planting the seed to the sale.
These seven basic steps can guide your succession plan and place it into reality:
1. Have a family meeting. This should include all members that have an interest in the operation. The meeting requires input from the entire family and any partners. You can suggest a target retirement date (even if it is years away) and what your goals are for the farm. Getting your feelings out in the open so the stakeholders know where you stand is important. Just as important, understand how others feel about the plan of passing the farm to the next generation. This step will help avoid future disputes among active participates and non-active family members. The biggest thing to remember is to keep an open line of communication with everyone.
2. Assemble your team. Putting together a successful succession plan takes an army. Choose a group of advisers whom you trust and respect. One benefit of having a team is the ability of brainstorming with each other and coming to the table with different options. Be mindful of your selected team, making sure everyone can work and collaborate well throughout the process.
3. Establish your vision for succession. Think about your own target date for retirement, and the steps you need to take between now and then. Those steps include transfer of labor, management duties, assets or debts, and a financial plan to fund your retirement. Determine what vision and goals the next generation and shareholders have. If there are any disagreements or disputes, take the time to work them out. Disputes during this process can add major stress and conflict between partners and family members.
4. Make a list. Make a list of all your assets and debts, including all farm and non-farm items. Give detail to each item and provide knowledge of who owns a particular piece of equipment, or if its financed and who the lien holder is. Include non-farm assets as well, such as vacation homes, retirement accounts, life insurance policies and vehicles not tied to the farm. Include all accumulated farm debt to establish a timeline to pay off the debt, or determine if the debt is passed to the next in line. This will assist the next generation in securing any needed financing. Furthermore, it will require you to ask some difficult questions such as, “If there is more debt than assets, is it worth passing on?”
5. Gather all supporting documents. Gather all supporting documents that your team would want to know about. Include all rental agreements, partner agreements and life insurance policies, alongside a will or trust, which should be at the top of the list. Include power of attorney and any health care directives. If you have had a previous plan, include that as well. These plans should be reviewed and updated accordingly.
6. Settle on a timeline. Transferring a farm to the next generation does not happen overnight. As part of the process, agree on a tentative timeline to implement the plan. Keep in mind, it could take a year or more to put a plan in place and up to a decade to fully achieve it. Time is of the essence, start early and do a little bit at a time so it’s done right to avoid issues.
7. Put the plan into action. After putting in the years of work and all the pieces are in place, it’s time to put the plan into action and begin to implement it. This can be the hardest step. You need to commit to the steps you put into the plan and let the next generation flourish in their new role.
Passing on a farm to the next generation can be complicated. But don’t let that be a reason not to start discussing it with members of your operation and family. Don’t let my story be yours, as there are always some unforeseen life events that can change the course of someone’s life. Be prepared for those events, start these conversations today, and don’t wait. Because at the end of the day, we don’t own the land we farm today; we are just borrowing it from the next generation.
To learn more about farm succession planning and other financial questions about farms and ranches, visit with an instructor near you. The North Dakota Farm Management Education Program provides lifelong learning opportunities in economic and financial management for persons involved in the farming and ranching business. Visit ndfarmmanagement.com, Facebook @NDFarmManagementEducation, or contact Craig Kleven, state supervisor for agricultural education, at firstname.lastname@example.org or 701-328-3162 for more information. The ND Farm Management Education Program is sponsored by the North Dakota Department of Career and Technical Education.
Wilcox is a North Dakota Farm Management Education Program instructor at Lake Region State College, and writes from Devil’s Lake, N.D.