By Miranda Burks, CFP®, Financial Planner, Commerce Trust
You have been thinking about how to transition the family farm — but where do you start? What are the best options to ensure your retirement is safe, and the farm stays in the family? There is a lot to consider, including transferring income, assets, and the operational management of the farm to your successors. Decisions on how and when this happens will play into your overall retirement, financial, and estate planning.
Farm succession planning is more complex than just creating a will. You will need a team to help you through this process. If you have a wealth management team to support you, a financial planning professional can coordinate with other specialists like attorneys and accountants to help you think through the following:
- Know What You Have and What You Want to Do: You will need a comprehensive balance sheet as well as an understanding of your operational cash flow. Ask yourself: What do we want to accomplish with this transfer? What is important for our family and our legacy?
- Management Transfer: Are your successors capable and willing to take over operations?
- Asset Transfer: Outline how the land, buildings, and equipment will be conveyed.
- Business Planning: Are the strategies you are currently using (personnel, marketing, and finance) working or should you work to change things before the transition? Consult with those around you and have an open and honest conversation about the strengths and weaknesses of the operation.
- Cash Flow Replacement: You will want to have a plan for replacing income over time, through purchase, carry-back financing, profit-sharing, or a combined approach.
- Estate Planning: Project the potential value of your estate at the time of transfer. If the land and business are the majority of your assets, consider how liquidity will be created to pay any taxes due.
- Family Dynamics: If there are familial disagreements or ownership issues, make sure that you are advised on how to mitigate these issues. For example, if one child plans to run the farm/business and the other wants nothing to do with it, make sure you consult with advisors on how to create a fair and equitable transfer of assets.
- Retirement Planning: Decide where you are going to live. What do you want to do with your time? Do you want to travel? What are your hobbies? Will your new income stream support your expectations?
Consider allowing your financial planner and wealth management team to develop a tailored succession plan, or revisit an existing one, based on your unique circumstances. Proactively planning for the transfer of your farm ensures that your legacy and business are secured for future generations. Farm transfers take time and planning, and it’s never too soon to start. Contact Commerce Trust today to learn more about our comprehensive succession planning capabilities and how our team can help you safeguard the future of your farm for years to come.
“Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”
The opinions and other information in the commentary are provided as of April 16, 2024. This summary is intended to provide general information only, and may be of value to the reader and audience.
This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such.
Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Commerce Trust is a division of Commerce Bank.
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