Successful farm transition requires getting the paperwork done
Farms are normally a family business which makes it extra important to develop and implement an action plan to insure the farm can continue to the next generation.
The process of transitioning a farm from one generation to the next often runs into problems when family members have not put their transition and estate matters into a written format. Getting the paperwork completed must happen prior to the death of any of the major players in the family business. Too often we procrastinate until we see that someone is slipping into poor health to get started on developing a plan and taking necessary actions. Not having a will can leave the entire family in turmoil if someone dies, divorces, becomes disabled or becomes disassociated with the family farm business.
Working with farm business management planners or qualified transition managers is often when the transition plan process begins. The details and process of a transition plan can be more complicated than one may think until you become engaged in the process. Getting the major players of the farm to the point that they realize that the entire farm family needs to get the paper work done correctly is the most important first step. So what does getting the paper work done correctly entail? This is not just one simple form but rather a combination of information and in most cases includes legal documents to provide the foundation for a smooth transition when a major event happens in the farm family.
A farm is not just a title to some real estate; rather it is often treated as a part of a farm family’s tradition that is often handed down from one generation to the next. The farm may have strong ties even to those that are not currently living or working on the farm. We often have aunts, uncles and extended family members expressing the desire to see the family farm continue. Michigan State University Extension suggests that every family farm situation has just a little different set of circumstances so a “one size fits all” checklist will not fit every situation or family. Taking a practical approach often starts with building a basic understanding of the process of transitioning a farm would be a good starting point.
Step one, paperwork: The development of a will and/or the trust is necessary. If there is no paperwork, then there is no will or trust in place. If this is the case, the state of Michigan law automatically becomes the deceased’s estate plan. The law requires all assets that were not jointly held with a spouse to go through the probate court system. Probate is a system where the court determines as best as it is capable of to determine the implied desires of the deceased are met for the assets that were owned. Although everyone realizes the importance and need of a will and or trust, we still find that many people are without even these basic estate planning documents. The three main parts of the will identify who will be your personal representative (the person that will be put in charge and responsible for administrating your estate after you have passed). Secondly, the will provides an explanation of how and to whom you would like to inherit the assets of your estate. This is extremely important for family farms as providing a method or process for the farm assets to remain part of the farm can be vital to the long term viability of the farm. This is the section that often scares individuals into not taking any action to develop a will or trust and leave the future up for chance. The third component of the will gives direction as to whom you would like to care for any dependents you have at your death. This may be a minor child who will need a guardian or a family member with special needs who may require some special arrangements for long term care.
A great place to start is to review Peace of Mind which is a nice document published by the Michigan Legislature that outlines the first steps and even provides you with a simple will format to help you get started. For more information and resources you can visit the FIRM website page to review and download documents and resources related to farm transition.
Steps in getting your farm transition plan in place:
- First line of paperwork is a will and/or trust
- Second step is to make sure you are maintaining a current and very detailed Balance Sheet inventory.
- Are members of the family farm business setting goals?
- Develop a vision for the farm business that focuses to a transition plan.
- Balance farm and non-farm issues that impact the farm business transition.