What contingency plans should we have if the next generation decides not to farm?

When it comes to farming, you’ve likely put a lot of love, sweat, and hard work into your farm. But what happens if the next generation decides farming isn’t for them? It’s important to have a good contingency plan in place to ensure your farm’s legacy continues, even if your children or other family members choose a different path. Here are some actionable and thoughtful plans you could consider to prepare for this scenario.

1. Leasing the Farm

One approach is to lease your land to another farmer. This way, your land remains productive, and you can still benefit financially. Leasing can be short-term (one to three years) or long-term (five years or more), and you can structure the lease in a way that gives you some flexibility. Here are the key points regarding leasing:

• Income Stability: Leasing provides regular income without the day-to-day responsibilities of running the farm.
• Land Maintenance: The lessee would be responsible for maintaining the land, ensuring it remains in good condition.
• Flexibility: If your children or other family members decide to return to farming later, you can adjust or end the lease.

2. Selling the Farm

Although this might be a hard decision, selling the farm is another option. This could provide you with a considerable amount of capital, which can be used for retirement or bequeathed to your heirs. Here’s what to consider:

• Valuation: Have a professional appraisal to understand the market value of your farm.
• Taxes: Be aware of potential capital gains taxes and work with a tax advisor to minimize your tax burden.
• Finding the Right Buyer: You might want to sell to someone who will continue to farm the land and maintain its legacy.

3. Hiring a Farm Manager

If selling isn’t an option you want to consider, hiring a farm manager could be a viable solution. A farm manager can run the day-to-day operations while you or your family maintain ownership of the farm. Key benefits include:

• Operational Efficiency: A professional manager can often run the farm more efficiently.
• Continued Family Ownership: Your family retains ownership and can still benefit from farm profits.
• Less Responsibility: You and your family can enjoy more free time without the burden of daily management.

4. Forming a Farm Partnership or Corporation

Creating a partnership or corporation might help you bring in outside investors or professional farmers to operate the farm, while you retain partial ownership. Consider these types:

• Partnership: You can partner with a neighboring farmer or someone experienced in farming to share responsibilities and profits.
• Corporation: Forming a corporation allows for easier transfer of ownership and can bring in investors who have skin in the game.

5. Conservation Easements

A conservation easement could be a way to ensure your land remains used for agricultural purposes without actively farming it yourself. This involves legally restricting the use of the land to ensure it remains undeveloped, providing some benefits:

• Financial Incentives: You may receive tax benefits for agreeing to conserve the land.
• Preservation: Your farm’s natural beauty and agricultural use are preserved for future generations.

6. Agritourism and Diversifying Farm Activities

Consider turning your farm into an agritourism destination or diversifying your farm’s activities. This includes operating activities like:

• Farm Stays: Offering accommodations for tourists to experience farm life.
• Educational Tours: Organizing tours where schools and groups can learn about farming.
• Seasonal Events: Hosting pumpkin patches, corn mazes, or Christmas tree farms.

7. Setting Up a Trust

Creating a trust can manage how the farm is used in the future. This legal entity can preserve the farm’s assets for future generations and ensure it’s used in a way that aligns with your wishes. Benefits include:

• Controlled Management: The trust can specify how the farm should be managed and used.
• Tax Benefits: Trusts can offer certain tax advantages that help preserve wealth.
• Asset Protection: A trust can protect the farm from creditors or legal issues.

Planning for the Unexpected

While these contingency plans cover various scenarios, it’s crucial to always have a clear, written plan that includes:

• Will and Estate Planning: Ensure your will clearly outlines your wishes for the farm.
• Regular Reviews: Regularly review and update your plans to ensure they remain relevant and aligned with your goals.
• Professional Advice: Work with estate planners, financial advisors, and tax professionals to navigate the complexities of farm management and succession planning.

By having these contingency plans in place, you can be prepared for any eventuality, ensuring your farm remains productive and continues to be an asset to your family, whether they choose to farm it or not.

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.