12/15/2012 7:00 AM
By Paul Post New York Correspondent
COLONIE, N.Y. — Handing farm land off from one generation to the next is a cornerstone of preserving American agriculture.
However, it is fraught with complexity and requires careful advance planning to make sure that such steps are done legally and properly.
That was the topic of “Land As Your Legacy,” one of the most heavily-attended seminars at this year’s Dec. 4-6 New York Farm Bureau state annual meeting.
“These issues are tough,” said Donald G. Schreiber, an attorney with Nationwide Financial. Last Jan. 1, Nationwide Insurance became Farm Bureau’s endorsed insurance provider.
“Families and farming are greatly interwoven,” Schreiber said. “Seven out of 10 family businesses will fail to make it to the next generation. The cards are stacked against you.”
From 2002-07, the average farm owner’s age rose from 55 to 57. The fastest-growing age group among farm owners is 75 and over, while the slowest group is 25 and under, meaning that significant change is on the horizon.
“I guarantee that over the next 20 years there will be a dramatic disruption in the farm community,” Schreiber said. “It’s going to happen. Farm transition is an issue that affects us all and it’s coming on rapidly. Will we lose control over our own food supply?
“It’s a national issue,” he said. “It’s a stewardship issue, it’s a family farm issue.”
The topic is especially critical considering proposed government tax policies.
“If the estate tax rate shrinks to $1 million and the top rate jumps to 55 percent as of Jan. 1, you will see family farms begin to disappear from the landscape in New York,” Farm Bureau President Dean Norton said. “It will not be financially viable to pass along the land and the business from one generation to the next. That would be a huge loss not only to the farm families and their legacy, but to the rural economy that greatly depends on agriculture as its backbone.”
However, farmers can fight back. The best way is to prepare.
Sound transition planning involves five key steps. They are: succession planning, business planning (profitability), risk management, financial independence planning and estate planning, Schreiber said.
Sometimes, letting go is the hardest thing for any farmer to do. And sometimes, keeping a farm active might mean selling to a nonfamily member.
“I’m still trying to find a farmer that’s retired even when they say they are,” Schreiber said. “They aren’t. I want you to give up control. Turn over responsibility to the next farm operator.
“There are young people out there who have the same love of the dirt, just like you. They have no opportunity. You have a world of knowledge and experience. You have to mentor them and grow them. We need mentoring plans. We have a lot at stake.”
First, however, farmers have to obtain the financial independence needed to make retirement possible.
Two main obstacles stand in the way of smooth transitions — people and legal/financial considerations. With the former, conflicting goals can be a problem.
“You need to have family meetings,” Schreiber said. “You need to sit down with a written business agenda and discuss distribution, about how this is going to play out. You must do this in the living’ years. Smoke signals or a Ouija board won’t work after you’re gone.”
Estate planning can be especially difficult, especially when more than one child is involved.
“Your kids are different,” Schreiber said. “Each one has special gifts, special talents. The question is, what role do they play?”
Schreiber said he’s already told his two sons that his significant estate will be distributed in installments over a period of years, instead of one large amount. “Is sudden wealth really an act of love?” he said.
Many of his listeners agreed that one large sum can cause more problems than having money spread out over a longer time frame. The most important thing is to have things planned ahead of time, which also helps prevent family disputes.
“Transition is not an option,” Schreiber said. “It’s going to happen.”