• Business Succession Planning for Family Farms & Agribusinesses
  • November 7, 2013
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • Although Congress finally provided clarity regarding exemptions and rates for estate, gift and generation skipping transfer taxes, owners of family farms and agribusinesses still have to consider many remaining business succession planning issues.  Owners of family farms and agribusinesses must keep in mind that business succession planning, no matter what the tax law is, will always be necessary. If a business owner fails to address his or her estate and succession plans, a business owner’s wishes concerning how the family farm will pass to family members will be put at risk and in the end more wealth will be lost to litigation, expenses and family conflict.  Ultimately, planning for your non-tax goals should be of the utmost importance in preparing your business succession plan.
    A family farm succession plan is not a one-size-fits-all process, rather a variety of planning tools and options must be considered. Owners of family farms and agribusinesses, in particular, struggle with unique characteristics that extend beyond the business to personal relationships. It is the ties among parents, children, siblings, spouses and in-laws that make a succession plan a necessary part of not only managing personal wealth but more importantly the business itself.
    First, it is important to consider the individuals involved in the overall business succession plan. Consider what role children, step-children, grandchildren and others currently have, may have, or want to have in the business in the future. This process includes consideration of unresolved issues between family members or addressing the fact that a successor may not be prepared to lead and manage the farm business. Additionally, you must identify which family members actually want to be involved with the hands-on responsibilities of the business. It is important to understand and accept that not every family member will necessarily be qualified or even want to be involved, as many times family farms do not always provide opportunities that fit everyone’s strengths and interests. Thus, it is important to talk with your family about establishing a business succession plan to begin the process of developing a transition for your family business. With open communication between generations, it is more likely that your business goals will be met while maintaining harmony in the family.
    After considering the individuals involved in the business succession plan, it is important to evaluate the variety of planning methods available in establishing a successful succession plan. Many times, there will be an on-farm heir and non-farm heirs. In looking at a business succession plan under such scenario, it many times becomes a battle of “fair” versus “equity.” It will be important to evaluate options to avoid an on-farm heir owing his or her siblings for the rest of his or her life, as the on-farm heir tries to buy out the non-farm heirs’ shares. There are several planning techniques that can assist in avoiding such a dilemna, including the use of life insurance to benefit those heirs that are not involved in the business. These techniques may achieve a balance between the on-farm and non-farm heirs, as the on-farm heir receives an interest in the family business, while the non-farm heirs are compensated equally with a cash payment from life insurance proceeds.
    Another method that can be implemented in a business succession plan for a family farm or agribusiness is the use of a limited liability company (“LLC”) to run the family farm or agribusiness. The owners of the LLC can gift or transfer membership interests to family members. The patriarch of the family, as manager, can retain limited control of the family business during the transition, while receiving income from the business. Additionally, as the succession plan is implemented on-farm heirs can receive management control of the LLC, while still providing non-farm heirs an interest in the business. This method allows all heirs to be treated fairly, while acknowledging the difficulty in treating them equally.
    In working through the options and dynamics of a business succession plan it is helpful to enlist qualified professionals who do not have a stake in the final decisions, as they can assist you in making unbiased decisions.   By taking the time to create a succession plan, a family’s vision and intentions for their farm or agribusiness can be addressed and implemented purposefully. Ultimately, succession planning helps ensure the family business can continue operating with sufficient economic viability to financially support multiple generations in the years to come.