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Farm Insurance Agents Understand The Long Term Planning Options For Successful Farmers

If you are like most farmers you have essentially everything you and your family own tied up directly or indirectly in your farm business. I am not talking about whether or not you own it or the farm owns it or even if the farm corporation or partnership owns it. What I am saying is that you probably have very little cash that is not going to be needed to run the farm and all your other assets are being used by the farm to generate income.

It is not unusual, according to what farm insurance agents tell me, for a farmer to have 90% of everything they have tied up in the farm’s operation. So what will happen to your family, your partners (maybe family members), and even the farm itself if you leave? Naturally when I use the expression “leave” I actually mean when, not if, you die. Whether or not everything you, and perhaps your parents before you, created will come apart or not will be the result of the plans you are making today. That I can guarantee!

There are actually only three options available to you when creating your farm’s plans for the future. Naturally each situation is unique and farm insurance agents have stacks of examples how a combination of these three options can be custom molded to wrap around your farm and your family’s goals and objectives.

One option is to simply sell the place, liquidate the assets the land and equipment by selling everything individually. You have been to dozens of farm sales so you know what I mean. Another option, the preferred option for most farmers of my experience is to pass the farm business to the next generation, a son or daughter – along with their spouse and non-farm heirs, so the farm can continue on as it has for generations. The final option is to sell the entire operation as a going concern. An example of this would be a fair-market sale to a neighbor’s son or to the farmer down the road.

Selling the farm one asset at a time, the auction method, will only return you a few cents on the dollar for all the assets, except maybe the prime farmland or the development-ready land you own. Think about it, when you go to a farm auction do you go there to see just how much money you can pay for something? Of course not, and neither will your neighbors when they come to your family’s sale.

Passing down the farm is everyone’s dream – having the business carried on by a son or daughter with mom and dad on the front porch watching over them – or maybe on a cruise checking the web cam dad set up in the barn so he can still check on the milking from half way around the world. The problem with this scenario is that managing the farm is different from doing what you’ve been told and farmers often seem reluctant to train their successors to manage the operation and lead the employees as if they were the boss.

Can your offspring run the place? Will your banker and trade creditors trust their judgement if you are not there to back up their decisions? I have heard from farm insurance agents who work with farms in transition where the kids (40-50 years old) were never allowed to make serious binding decisions until dad unexpectedly died. Good intentions notwithstanding, this is business and if you want it to succeed after you’re gone you have to begin laying the groundwork today.

What about your key employees, will they stick around and work for your successor or will they take off right after the funeral? How do you know? Can they work for your kids? For that matter can your kids work together? What if there is only one successor on the farm and all the rest have no interest in running the business – just in getting their “fair share” of the inheritance?

Can you see any problems here? Is it possible that the heirs will want their inheritance at the same time the government wants its taxes, and the hospital wants its money and the banker wants to clear the current notes before loaning money for next spring’s planting or feeder stock?

Do you think anyone not getting their “fair share” in cash and right away will be bitter and make it hard on your kids and your spouse? Asking farm insurance agents to tell you about the actual behavior of otherwise really nice people can be an eye opener. Will there be enough cash flow to pay off the non-farm heirs, the bank, etc. and pay your successors and key employees to run the place and still have income security for the rest of your dependent family?

If it turns out that either there isn’t anyone in the family who can run the place, or the kids can’t work together, or there is not enough cash to pay them off and still continue to farm, then maybe you’d be better off just sell the place. The only question is who will set the price and the terms and whether or not your family will receive the greatest value for your years of hard work.

There is one way to make sure in advance that your interests are protected. That is with a Buy & Sell Agreement.

Personally, if I were in your shoes I would talk with someone I trust about this right away. Farm insurance agents have arm loads of sample agreements and access to the most creative minds around – who will consider your situation, what’s important to you and help you and your family create a process that will insure that the terms of the agreement will be kept and that the farm and your family’s security will be protected.

Successful farmers understand that concentrating on the immediate short term decisions that add to their profits , and that require countless hours of their time, should not take all of their energy, They understand that the valuable insights of their farm insurance agents can help them focus on what is important to them, their family, and the farm – for years to come.

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