Checklist for Farm Business Succession Planning

We have set out some basic steps of the business succession planning process, but many of them can be done simultaneously. It will be important to continue to revisit earlier steps, such as engaging with family, as you move through the process.

Step 1—Take care of the family by gathering ideas and expectations.

• Let everyone know that you are thinking about the long-term operation of the farm after you retire or die.
• Talk to your family about your estate plan. Find out how family members would prefer to be recognized in your estate plan. Start establishing expectations about the business succession and estate plan well before it is drafted.
• Discuss farm succession with family members who express an interest in managing the farm to assess their level of commitment and expectations and involve them in the decision-making process.
• If you do not have a Gen 3 successor in the family, seek out Gen 3s that would be a good fit by networking with other farmers, connecting with local or state agricultural education programs such as those at Oregon State University, or connecting with other organizations that manage farm training or young farmer programs.
• If you do not have a Gen 3 successor, set up an internship or limited farm manager position as an introductory period with no long-term commitments. You may need to work with several potential successors before you find the right fit. Use the process to plan and practice turning over management tasks to as well as training an incoming Gen 3.
• Identify professionals that can help you through the process. Start with any professionals that you already work with, ask for referrals if you need to find other experts, and get advice from lenders and other farmers.
• Attend a business succession workshop or seminar and explore further business succession resources.

Step 2—Ensure the health of the farm business.

• Determine the income needs of retired Gen 2s, the income needs of Gen 3s and their family, and the farm’s cash-flow and investment needs.
• Determine the farm’s value by making an inventory and an estimate of the value of each item. Also inventory nonfarm assets for estate planning purposes.
• Evaluate the rate of return to determine if the farm is generating enough income to cover the income needs of Gen 2s and Gen 3s, and the farm’s cash-flow and investment needs.
• Make a business plan to “make the pie bigger,” if necessary. Your prospective Gen 3s can make a business plan and budget to evaluate a new business line or expansion, for example. Planning to grow the business is a good way to involve Gen 3s and to assess their skills, provide training and experience, and give a sense of ownership over their role.
• Consider options for converting farm assets into cash for operating capital or new farm investment, such as conservation or working lands easements. Remember that some tools can have multiple benefits, such as reducing the market value of the land for estate tax purposes. Other tools come with risks. All must be approached with caution and careful planning.
• Take all appropriate legal steps to manage risks involved in the farm activities that you undertake in your business, from obtaining the right insurance coverage to drafting contracts, filing liens, and invoking other statutory protections when necessary.
• Work with your accountant and other business planning professionals as you make business decisions.

Step 3—Organize the farm business limited liability company (LLC).

• Get recommendations from other farmers or ranchers or see the “Resources” section to find an attorney who is equipped to work with your farm business and one who you are comfortable with. Conduct several interviews.
• Carefully consider the rights of the LLC owners so that they have clear boundaries between owners’ authority and management’s authority. Consider which family members should have the right to be an LLC owner. Your attorney can help you write an operating agreement that creates clear rights and responsibilities for everyone involved.
• Remember that organizing the farm as a legal business entity provides immediate risk-management benefits and doing it as part of your business succession plans will ease the succession and estate planning process down the road.

Step 4—Organize your farm LLCs for your business succession plan.

• Learn about last-person-standing LLCs and other business organization options in this publication to save time and money while working with your attorney.
• Review and organize your farm’s financials by the function of different farm business activities. Work with your accountant and other professionals to set up the appropriate LLC entities, who will own each entity, and the financial relationships between each entity.
• With your Gen 3s, family, and professional advisors, generate some options for a business succession plan. Considering options allows you to see some benefits and potential pitfalls for different ideas. Review your options with family members and advisors to refine your ideas, and be sure that family and Gen 3 preferences are taken seriously.
• Plan out a business succession timeline. Consider the time it will take to grow the farm business, if necessary; your timeline for retirement; and the training or other skills that your Gen 3 will need before they are ready to take over management.
• Set up milestones for gifting or selling shares in the LLCs to Gen 3 and other nonfarm family members if you want them to begin taking ownership interests before your death.
• Update your plan as circumstances change. Very little ever goes exactly according to plan! Be in communication with your Gen 3, other family members, and professional advisors as time goes by. Schedule regular check-ins to discuss the plan.

Step 5—Create the estate plan.

• Continue to consult with your family members about their wishes when you decide how to create a gift for each of them in your estate plan.
• Consult with your professional advisors about any additional insurance or financial instruments you need to address estate taxes (if they apply) and to give gifts to nonfarm family members.
• Review your plan on a regular schedule, and update it as circumstances change.