Helping farm families build a successful transition plan
Most farm families know they need a transition plan for their operation. But they don’t always know how to build one — or where to even start the process.
Farm families have a sophisticated suite of business assets. It takes time to organize a plan that moves those assets in a desired and tax-efficient way.
With so much at stake, it’s important to start early, set clear expectations, and tap into expert help.
Because crafting a strong succession plan isn’t just another item on the to-do list. It’s your opportunity to ease the transition into retirement, manage expensive tax liabilities, give the next generation a sturdy foundation, and secure your farm’s legacy for years to come.
How long does it take to build a transition plan?
As tempting as it might be some days, you can’t just wake up one morning and decide to retire from the farm. This is something that needs to be planned well in advance.
A transition plan should factor in at least three tax years: the target retirement year, as well as the calendar years directly before and afterwards. For example, if you want to quit farming in 2027, your transition planning should begin no later than 2026, continue in 2027, and wrap up in 2028. This doesn’t mean you have to dedicate three full calendar years to the process. It can be done in as little as 18 months (for example, August of 2026 to January 2028).
Some farm families may choose to start even earlier than this. Longer, multiyear plans are possible and can help manage extra complexity or a longer transition period.
What every transition plan should factor in
An ideal transition plan takes a three-pronged approach. All three sectors work together to form a cohesive, all-encompassing plan:
Financial planning: This includes your multiyear strategy to downsize assets, pay down debts, and/or manage tax obligations.
Ownership planning: Think about whether you need to change or add a specific business entity structure to accommodate the next generation.
Management succession: When and how will current management reduce or relinquish their responsibilities?
The first two pieces of this equation are solely business and financial decisions. Long-time farmers have usually been making those decisions for decades. But the third comes with a higher degree of personal investment. It can be difficult mentally or emotionally to hand over the reins, which is why it’s critical to start the process early and prioritize clear expectation-setting.
At each stage of the transition planning process, good communication is vital. This includes communication among family members, as well as with others involved in the process, like attorneys, lenders, or your FBFM Farm Business Consultant.
Be honest about your objectives for a successful transition plan. Goals could include things like:
Managing post-retirement debt load
Diversifying investments after handing over management responsibilities
Managing income tax liabilities
The more that everyone involved in the process understands the ideal outcomes, the quicker everyone can get on the same page and keep a plan moving forward.
First steps: How to begin transition planning
Start the intra-family conversation. Discuss with your spouse (if applicable) any desires or timelines you have in mind. Once you come to a shared understanding of those, open up the discussion to the next generation.
Be sure your balance sheet is complete and accurate. A successful transition plan must be built on current, correct information. To ensure you have all your numbers squared away, you can also work with your FBFM Farm Business Consultant.
Get your tax information together. For example, what is your current cost basis in your land? In your machinery? Gathering this data can help ensure a smooth initial review with your trusted advisors.
At this point, you’ll want to schedule time with your FBFM Farm Business Consultant.
During your first meeting, you’ll go over key data together: assets, debts, potential tax obligations, and timelines to execute. Your FBFM advisor will start to map out financial strategies to manage those obligations, according to your desired transition timeline.
But working with FBFM isn’t just about looking at the numbers or managing paperwork. Your FBFM Farm Business Consultant can also be a valuable resource when you open conversations with other key business partners, like your lawyer or banker.
We can help quarterback this process by keeping everybody in the loop at the right moments and interpreting any legal or financial complexities into plain language.
Start the conversation today
This process can be complex, and it’s a vital part of your long-term legacy.
If you’re ready to begin building a transition plan that aligns with your family goals, business objectives, and long-term farm success, reach out to your local FBFM office to start the conversation. You can also download our free Farm Transition Roadmap resource here to learn more about first steps and common challenges.
