The following are points from an article written by Carrie Heizer, a student in my senior level course. Carrie is my administrative teaching assistant for Agricultural Finance and is from a beef and cropping operation in the Shenandoah Valley region of Virginia. Carrie, along with my sons, had the opportunity to gain a little culture at the NASCAR races at Martinsville recently.
The Farm and Ranch Transfer Dilemma
By Carrie Heizer
Students in Virginia Tech’s agricultural management and problem solving course had an opportunity to participate in a unique experience -– to travel across Virginia and visit with a variety of agricultural enterprises involved in family business transition. The objective of the trip was to provide students a chance to combine all of the skills they had learned at Virginia Tech over the past four years and to see the prevalence of these issues in the real world.
Every farmer would one-day love to be able to sit on their front porch and see their children successfully work the land that they once did. One situation prohibiting the successful transfer of the business is that an agreement simply cannot be made within the family as to how to design the transfer or because the exiting operator is dependent on the assets of the operation for retirement.
Failing to Plan is Planning to Fail
Planning is the key to success when passing down management and ownership responsibility to the next generation. A transition team consisting of a facilitator, financial advisor, lender, lawyer and accountant make the transition move more smoothly. In the short run, the costs for such services seem overwhelming; however, in the long run, it is an investment that has unlimited benefits.
It’s recommended that before returning to the family farm, the younger operator gain three to five years of experience off the farm. Experience at someone else’s cost, communication skills, and the opportunity to learn under other management can provide a learning experience needed before managing their own business. Tough decisions arise as to how to compensate other children. Life insurance policies are a great example of how to compensate the off-farm children who have no interest in the farming operation. If the family farm is to continue, children must be treated equitably and not equally.
Many times the farm assets are the only retirement plan farmers have to rely on. Over the years, profits are reinvested into the operation for growth and expansion, and many farmers plan to spend their last day on the farm. When farm assets are tapped for retirement income or for healthcare costs, there is little or no opportunity to pass on the farm. Farmers and their spouses should become familiar with retirement options such as SEP, SIMPLE, and 401K. Diversification and starting early are fundamental elements when planning for income after retirement.
In today’s society, it is essential that farmers plan for transition of the family farm and for retirement if they desire to have the farming legacy of their family carried into the future.
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Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist at Virginia Tech. He recently completed a sabbatical working with the Royal Bank of Canada. He is now back at Virginia Tech with his academic appointment, which is teaching, extension, and applied research.
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