Large Transfer of U.S. Farmland on the Horizon

It is not just the Baby Boomers who will pass on wealth to the next generation. Farmers and ranchers are in a similar situation.

As the present ownership ages, approximately 10% of the 100 millions acres of agriculture land in the U.S. will change hands, as the next generation obtains the property from their parents, according to Agweek in “Ranching and retirement: Succession planning becomes vital.”

According to the article, the average age of U.S. farmers and ranchers is 58.3 years old, while 30 years ago the average age was 50.5 years old. Agriculture is in a transition phase and families need to focus on succession planning.

Farmers and ranchers, referred to as “producers,” often say that they’ll stop farming, when there’s a funeral date on the calendar. That attitude may be changing, as second, third, and even fourth generation farms are evolving. There are new leaders for the next generation who have new ideas about how farms can be run. Many older producers are getting ready to pass the reins along and retire.

The focus on succession planning used to leave the older producers and their retirement plan as an add-on, something that got addressed, when the division of the farm and assets was completed. In many cases, it got left out altogether. However, questions about how they will live in retirement are now coming to the forefront.

Producers who begin planning on succession, understand that their plan must include their retirement and how they’ll support themselves in what could be a two or three decade-long retirement. How can the family continue to operate the farm, grow it to support the generations, but also provide the oldest members of the family with a comfortable retirement?

Cash flow for retirement is the first focus. The families need to determine how they can generate passive income. Some families put the operation into an LLC or general partnership, so that business assets and income flows through that entity. This also creates a smoother path to ownership for the next generation. The land can’t be rented to the farmer directly, but it can be rented to the LLC, which generates cash flow. It is passive income, so it won’t make the farmer ineligible for Social Security and is not subject to the self-employment tax.

Families need to determine the true value of the farm and if it can produce income for another family, while supporting the older generation. This takes planning, and considerable discussion. The family must also work through what their strategy and vision is for the land and the families.

Farm and ranch families face some challenges. Once the family has a clear vision of the future, they should meet with an estate planning attorney, who can advise them in creating an estate plan that fits their unique circumstances.

Reference: Agweek (Dec. 3, 208) “Ranching and retirement: Succession planning becomes vital”