Broker Check


My Farm & Ranch: Transitioning & Retirement Planning

| October 03, 2016
Legacy Planning

I recently read an article offering a few statistics from the U.S. Department of Agriculture and one in particular caught my eye: Did you know that the median age of a farm operator in the U.S. is 57?!1 At age 57, every farmer or rancher should be considering - or have already considered - how they are going to transition their farm or ranch and what their retirement will look like. Now, if you’re like my dad, you may plan to work forever. But even he knows that this may not be realistic and regardless, he can’t run his ranch from the grave.

So, if you haven’t thought about your own legacy, please do. In order to help you get off on the right foot, here are some things you need to consider. We call it the “Who, What, When, How, Sam and Plan Approach”

Who? By this I mean, who will be the next generation to run the farm or ranch? Take Farmer Bill for example. Only one of his three children has any interest in adopting the farm life. How will he successfully transition the operation to his son and yet secure his own retirement? How can he divide his estate equally among all three children? How can he ensure his son, who will be the farm operator, will not be giving 2/3 of the proceeds from his work to his siblings?

What? Or what about Rancher Ted? It is extremely important to him that his ranch stay a ranch as long as possible. He has four children, yet none of them have any interest in the ranch. Moreover, Ted can’t find any young ranchers who want to lease him out. How can Ted retire and secure his income? How can the ranch be preserved?

When? Do you want to die at your plow? Are you sick and tired of the plow? Or, do you want to have options? What if a disability doesn’t allow you to carry out your original plan? How will your spouse be protected?

How? Let’s take a look at Farmer Bill again. He is a rugged individualist and decides that he has all the answers. There is just one small problem. He won’t let go. How can he? His retirement depends on the farm’s success. By the way, this is the story of most farmers and ranchers. Do you have a plan for a source of funding separate from the farm or ranch that will allow you the psychological and financial ability to systematically turn over the responsibilities of the operation to the next generation?

Sam? By Sam, I mean Uncle Sam. Taxes are an inevitable issue for farm and ranch transitioning. For instance, how can Rancher Ted sell his equipment without paying taxes on significantly depreciated assets? Or how will Farmer Bill’s son be able to make land payments with excess cash flow that he will have to pay a high tax liability for? Or what about the land itself? My bet is your cost basis is very low, but the value is very high. Uncle Sam really likes this situation.

Plan. One of the biggest mistakes we see farmers and ranchers make is that they try to answer these questions one by one by using resources and advisors that are independent of one another. Rarely does this NOT cause additional problems. A tax advisor is merely concerned about Farmer Bill paying less in taxes, but his solutions might tie Bill’s hands when it comes to equitably distributing his estate between his three children. Rancher Ted might find the perfect young rancher to transition his legacy to, but the taxes eat up over half of his retirement. It is critical to plan with a transition and retirement specialist who can communicate with these different resources and advisors to create a solid, successful plan for you, your family and your legacy.

1. – Farm Demographics