Common Habits of 3rd Generation Farms

• Only 30% of family farm operations make it to the 2nd generation.
• Only 12% of these 2nd gen farms make it past the 3rd generation.
• Only 3% of these 3rd gen farms will make it past a 4th generation.

This is according to a survey conducted by Agri Legacy in Clinton, MO.

Have you ever wondered what the 3% of 3rd generation farms do to successfully transition to another generation?

Successful farm succession involves several best practices that address the complexities of transferring leadership, management and ownership.

Key Best Practices

1. Open Communication: Sometimes this is difficult to explain. I've yet to meet a farmer who hasn't said they want to pass the farm down to the next generation. Yet, for many of them it's a hard subject to talk about.

However, engaging all family members in open dialogue about succession plans is essential. This helps clarify expectations, reduce potential conflicts, and ensure everyone understands their roles and responsibilities

2. Identifying Successors: It is estimated near 2/3rd of farmers who have children don't have children who actively farm. This is why more and more non-family transfers are occurring along side the traditional in-the-family transitions.

Choosing the right successor(s) is vital. This involves assessing their interest, skills, and commitment to continuing the farm's operations. For single heirs, clear communication and legal documentation are necessary to outline responsibilities

For multiple heirs, establishing a "fair" plan (but not necessarily equal) that considers each heir's abilities and interests is important

3. Legal and Financial Structuring: Sometimes I hear comments such as "our family is pretty simple so we don't need any fancy trusts or LLCs." While joint ownership may seem like an easy way to avoid probate, it can lead to potential tax implications and expose the farm to other risks.

Legal structures such as family limited partnerships (FLPs) or LLCs have become popular since they can help manage asset transfer while minimizing tax liabilities. These structures also provide a framework for gradual ownership transition, allowing the senior generation to maintain control while preparing successors.

4. Asset Management: A detailed inventory of assets like land, machinery, and livestock should be created. Decisions on whether to lease, sell, or pass these assets to heirs should align with the overall succession plan. All successful farm transfers will also delineate long-term land assets from the day-to-day operations since these may transition to different people.

5. Professional Guidance: Involving legal and financial professionals ensures compliance with tax laws and regulations. They can assist in creating effective succession plans that protect the farm's legacy while addressing financial liabilities. Successful farms recognize they may have to travel farther to meet with specialists in this area.

6. Avoiding Equal Division: Equating fairness with equality can lead to operational challenges if heirs have differing levels of involvement or interest in the farm. Dividing assets equally among heirs often leads to fragmentation and reduced farm viability. Instead, consider unequal distribution based on involvement in farm operations to maintain the farm's integrity.

7. Failing to Plan: All successful farms have a plan, but many farmers delay creating an estate plan, often due to the complexity of their assets and family dynamics. Without a plan, farms risk being sold or divided in ways that do not honor the original owner's intentions.

Now is a time to not have a plan. A record amount of farm wealth is estimated to transfer in the next 10-15 years given the average age of farmers and landowners are the oldest they've ever been in history.

#agriculture #familyfarm #farmers #legacyplanning #farmraised

Hello, my name is Mike Downey and I help farmers, landowners and ag professionals grow, preserve and transition their family legacies through farm business coaching and written succession plans.