Involve these 3 people in farm transfer
Transferring a dairy farm to the next generation can be complicated. No one wants to make it difficult, but the process involves many details. Written terms and agreements must be done properly.
The current generation is aging. As much as they would like to keep both hands on the balance sheet and cash flow, the next generation is going to take over the legacy of what the current generation worked so hard to achieve. Adding to the farm transfer thought process are the abilities, education and sincere interest of the next generation.
Help is out there to assist with a farm transfer of any type. Each farm and family is different. Three key people should be involved in the process, which will take a year or more to complete depending on the assets and complexity.
Ideally, the current generation has a family discussion to discuss the future of the farm before the owners reach the age of 60. Make sure one person takes notes from the start and continues throughout each meeting. Note dates as well as the names of who said what.
Next, contact a consultant experienced in farm transfers and with a good understanding of the process and time table. A consultant can help you save time and attorney expenses. Generally, a two-hour meeting is plenty of time to discuss topics with 30-day intervals between meetings.
- The first meeting should be with the primary owners to learn their thoughts and desires. Based on the outcome, the consultant will likely request the last three years of taxes and a current balance sheet.
- Financial information will be gathered at the second meeting, including the current balance sheet as well as the last three years’ cash flows. This will help the consultant see the farm’s ability to generate a true bottom line.
- The third meeting looks forward with projected cash flows.Is it feasible to continue planning? Can the current cash flow support the current and next generations? What needs to be rethought?
- Now bring in the next generation. Balance sheets, regardless of how weak or strong, need to be completed to give to the accountant and attorney so they know who is coming in and what their financial strength is.
When ready to meet with the accountant, the goal should be to share the balance sheets, historic cash flows and projections. Hopefully, the accountant has already worked with the farm and is familiar with the business. Key points to discuss are the tax consequences of the plan and what can be done to preserve as much cash as possible.
The next meeting is with the attorney and both generations. Pick an attorney that understands agriculture, farm family dynamics and taxes. Take all of the above information and plans. The attorney will have a lot of questions to consider regarding partnerships, LLCs, C-Corps, S-Corps or other structures.
At the next attorney meeting, you’ll discuss the suggested plan and how to move forward through the next 10 years as the agreement comes to life. Based on this discussion, the attorney will prepare documentation, including an exit plan and reasons for vesting. Everyone will read these documents and return to the attorney’s office to sign them unless major changes are needed.
Just the beginning
The process doesn’t end here. Hold annual meetings with all parties to keep everyone up-to-date on the plan’s progress. A lot of other details will need to be discussed and written into a good farm transfer agreement. That’s why it usually takes a full year to make sure you get it right.
This article was originally written for the March 25, 2017 issue of Hoard’s Dairyman.
About the author: Gary Sipiorski is the Vita Plus dairy development manager. He grew up on his family’s dairy farm in eastern Wisconsin and attended the University of Wisconsin-River Falls. Sipiorski spent 17 years with Citizens State Bank of Loyal and worked his way up to president and CEO. In 2008, he transitioned to his current role at Vita Plus and continues to serve on the CSB board of directors. In addition, he served on the advisory committee on agriculture and industry for the Federal Reserve Bank of Chicago and as an advisor for the Professional Dairy Producers of Wisconsin. Sipiorski is a regular contributor to Hoard’s Dairyman and other agricultural publications.
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