Opinion: Farmers, ranchers prepare for next generation

According to the U.S. Department of Labor, the average age of farmers and ranchers is 56 years, putting them among America’s oldest workers. The impending retirement within this demographic leads the way for a new generation of agriculture professionals to take over a primary sector of the U.S. economy. Farming and ranching families faced with identifying who will operate the business next may want to consider working with a wealth management professional.

A phased and thorough approach includes an inventory of assets, identifying the vision or goals of the farm/ranch, structuring the estate plan and taking action by carrying out the established plan.  

Phase 1: Inventory and assessment
To establish a net worth of the entire operation, a list of key people, equipment and livestock needs to be recorded. Key people includes anyone who keeps the business running, whether it is family members with management responsibilities or outside partnerships. Also, it is important to identify all potential beneficiaries who would be entitled to proceeds if the business were to be sold. It can seem daunting to undertake, but a comprehensive inventory of all equipment, livestock and relevant documentation, such as deeds, should be made. Additionally, it will be necessary to include a list of personal assets, like retirement accounts, which can have an impact on the liquidity of the overall assets and tax effects.

Phase 2: Identify goals
Although sometimes difficult, an established plan to communicate the goals and vision of the operation is critical. The entire family should be included in these conversations, even those who have no intention of running the farm or ranch in the future. Answer crucial questions such as, “What do we want to see this operation look like in five, 10 or 15 years?” The succession strategy should include naming a successor or successors to lead operations, deciding which assets to liquidate, transferring value as either ownership shares or monetary settlements, and how to treat equipment.

Phase 3: Develop the tools
Proper estate planning provides clear direction on how to control property and assets during the owner’s life, and it extends that control if the owner is disabled. It is important to consider all aspects of personal and business wealth encompassed in the estate plan, including retirement income, estate taxes, asset distribution, business funding and any potential fees or taxes related to ownership transfers. For instance, not all farm assets are appropriate for inheritance, like fully depreciated equipment, which is stepped up to full market value once inherited. On the other hand, harvested grain can be sold at market value by heirs without incurring income tax.

Phase 4: Follow through
It will be necessary to make sure that, even if the plan is years away from being executed, assets are titled properly. When equipment is added or sold, or when beneficiaries or management change, remember to retitle the assets and consult with a wealth adviser. This can be the difference between leaving a gift and establishing a legacy.

Tracy Barnas is senior vice president and regional manager of UMB Private Wealth Management in Springfield. She can be reached at tracy.barnas@umb.com.