How do we balance the need to be fair with the need to keep the farm viable?

Balancing fairness and keeping a farm viable can feel like trying to juggle two very important but different goals. This is especially true when you’re thinking about passing your farm on to the next generation or selling it while ensuring everyone involved feels they’ve been treated fairly. Let’s break down how you can manage both fairness and farm viability in a way that’s easy to understand and helpful for everyone involved.

Understanding Fairness and Viability

Fairness: This means making sure that all family members or stakeholders feel they’ve been treated justly. It’s not always about giving everyone the same thing, but about making sure everyone gets what is fair considering their contribution, needs, and expectations.

Viability: This is about keeping the farm running successfully. It means ensuring the farm remains profitable, well-maintained, and sustainable for future generations or potential buyers.

The Challenges

Often, these two goals can clash. For example, if you have several children, you might want to divide the farm equally among them to be fair. However, doing so could split the farm into pieces that are too small to run efficiently, making it hard to keep the farm profitable. Similarly, if one child has worked on the farm their whole life and another has not, giving them equal shares might not seem fair to the one who has invested more time and effort.

Steps to Balance Fairness and Viability

1. Communication is Key:
   • Talk Early and Often: Start conversations with all stakeholders (family members, employees, etc.) early. Make sure everyone understands the farm’s financial situation, its needs, and the reality of farming.
   • Listen: Understand the expectations and needs of everyone involved. This includes both those who work on the farm and those who do not but still have a stake in it.
2. Assessment and Valuation:
   • Professional Appraisal: Get a professional valuation of the farm. This helps you understand its financial worth and the value of its assets.
   • Understand Contributions: Recognize the contributions of those who have worked on the farm. Time, labor, and management efforts are valuable and should be considered when determining fairness.
3. Flexible Inheritance Plans:
   • Operating Agreements: Create operating agreements that outline the roles and responsibilities of each family member involved in the farm’s operations.
   • Divide Different Assets: Instead of dividing the farm equally, you can allocate different assets to different heirs. For instance, one child might get the land while another gets machinery or a share in other investments.
4. Business Structures:
   • Family Business Entities: Consider forming a family business entity like a corporation or an LLC (Limited Liability Company). This can make it easier to manage ownership shares and ensure the farm can continue operating smoothly.
   • Trusts: Setting up a trust can ensure that the farm remains a cohesive unit while still providing financial benefits to heirs. A trust can manage the property, pay income to beneficiaries, and eventually distribute the property according to your wishes.
5. Buy-Sell Agreements:
   • Buyout Options: Establish buy-sell agreements that allow those who are actively working on the farm to buy out the interests of those who are not involved. This keeps the farm intact and running under capable management.
   • Funding Mechanisms: Use life insurance or other financial products to fund buy-sell agreements, making it easier for the on-farm heirs to buy out siblings or other family members without a financial strain.
6. Professional Advice:
   • Legal and Financial Advisers: Consult with attorneys and financial advisers who have experience in farm succession planning. They can help tailor a plan that meets the unique needs of your farm and family.
   • Tax Planning: Work with tax professionals to minimize the tax burden during the transfer. This might involve planning for estate taxes, capital gains taxes, and other tax considerations.
7. Education and Training:
   • Preparing the Next Generation: If the plan is to pass the farm on to family members, ensure they are properly educated and trained in farm management. This ensures they are prepared to keep the farm viable.
   • Financial Literacy: Make sure everyone involved understands basic financial principles and the specifics of farming economics.
8. Softening the Transition:
   • Gradual Transfer: Slowly transfer management responsibilities to the next generation. This can help them gain experience and ensure a smoother transition.
   • Consulting Roles for Retiring Farmers: Retiring farmers can take on a consulting role, providing advice and guidance without being directly in charge.

Final Thoughts

Achieving a balance between fairness and viability requires careful planning, open communication, and sometimes creative solutions. Every farm and family is unique, so the best approach will depend on your specific situation. By involving all stakeholders, seeking professional advice, and considering various strategies, you can find a way to be fair while keeping your farm strong and successful.

Remember, what’s most important is to start the process early and remain flexible. Plans can adapt over time, and staying informed and engaged will make it easier to navigate the complexities of farm succession and regular updates, and medical proof can help protect your plan from being contested.

Make sure to check out more articles in our News & Views section. Feel free to reach out any time to see how Kindred can help you and your trusted advisors manage the complex succession plan process with simple software – cutting time & cost of the current process by 50% or more.