A farm transition is a serious investment into the future of the business. It must also be an investment into the future of both the outgoing and incoming generations.
Balancing those needs on a personal basis and a financial basis is tricky and laden with emotion. To guide the process, financial adviser Lamar King recommends considering an intentional path for each dollar. “What do you want to be remembered for?” asked King during a presentation at the Pennsylvania Dairy Summit. With that in mind, think about how you are learning and saving to make that a reality.
When one generation retires from the farm, the financial agreement must be structured so it is affordable for the new generation while still providing enough for the older generation to live on. Most people consider the affordability of the younger generation but give less thought to the expenses of the older generation, King said. This is especially complicated as people continue to live longer and the cost of living rises. “Just because there’s a cushion now doesn’t mean there will be one later,” he cautioned.
To help strike this balance, he advised having retirement financing options outside of the business. “The most flexibility for farms is assets off the farm,” King described. Retirement plans are a great example of this strategy, as they will help create less debt in the future for an incoming generation, can offer tax benefits, and may provide flexibility in estate plans to support non-farming heirs.
It may be hard to prioritize retirement savings at some points of the business, but King recommended viewing it as a debt paid to your future self. Creating that structure will help you and your heirs be better prepared for what’s to come.
The foundation
Of course, investing in outgoing and incoming generations requires communication of the goals and plan between both parties. Only about one-third of farms have a succession plan, King stated. Preparing for the future means being truthful and stepping into conversations that may be difficult.
The younger generation may want to ask if the older generation has an estate plan and what it looks like. Likewise, the older generation will need to reflect on if they are living long-term or day-to-day and if their actions are lining up with their beliefs.
Always consider what the farm is unified around — why does the business exist and why do you want to move it forward? What is happening (or not happening) each day to reach those goals? “It’s not just about moving the stuff. It’s the conversations and relationships that come out of that,” King said. Transferring wisdom and knowledge must be done before wealth is transferred, he reminded.
Katelyn Allen
March 2, 2023
hoards.com
Comments