By: Jennifer Denchak Wetzel, Esq.
A successful transition of the family operation and assets to the younger generation is a significant accomplishment, typically marked by a great deal of time and effort. Upon execution of the plan, the older parent generation is generally provided with an estate and elder law plan that, assuming no significant changes, should last for the rest of their lives. Throughout the farm transition planning process, the advisors (being an attorney, tax preparer, lender, financial advisor, etc.) normally represent the parent generation. However, if the transition is successful, the younger generation could definitely benefit from their own assistance, whether involving lending, tax planning and/or estate and business planning matters.
The typical next generation farmer is in his/her 30’s or 40’s, married, with young children, asset rich, cash poor, and in substantial debt. Although it is easy to focus on the needs of the business, of which you are now the owner, it is important to consider whether your family and business will be taken care of in the event of your untimely death. You do not want to lose what you have just worked so hard to obtain.
First, as a young parent, one of the most important things you can do to protect your children is to execute a Will that provides for a guardian in the event of your and your spouse’s deaths. For example, your closest kin may not be the best choice given his/her age, location, marital status, etc., but may be selected by a court if no one else is designated by you.
A properly drafted Will can also provide the guidelines for the preservation of the family operation for the next generation until the time when your children reach majority and can decide for themselves whether they want to continue in the family farm business. Often times this is accomplished through the use of a trust.
Finally, most farm transitions involve an installment sale to the younger generation for some or all of the farm assets. It is important to evaluate what payment alternatives would exist in the event of your untimely death. The purchase of life insurance may be essential so that your spouse and children are not saddled with this debt.