Succession Planning for Family Farms
H By Trav Baxter
Trav Baxter is a lawyer at Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. He holds an LL.M. in Taxation from the University of Florida School of Law, and devotes a portion of his practice to the provision of succession planning advice. 18
The Arkansas Lawyer
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istorically, relatively few family farms survive beyond the generation of their founding.1 In regard to family businesses in general, research has shown that no more than 30 percent make it beyond the first generation, no more than 15 percent beyond the second generation, and no more than four percent beyond the third generation.2 This research is significant in its application to family farms, as a study completed in 2008 stated that 70 percent of U.S. farmland is expected to change hands by 2028.3 Even taking the statistics of family farm survival into account, most farmers had, and still have, a vision of passing down the farm to their children and grandchildren. This vision may be important to them for a number of reasons. Maybe the farm was passed down to them from their parents, who received it from grandparents, and there is a deep desire to pass on that same legacy to their children and grandchildren. Maybe the farming family is first generation, and they want to ensure that their hard work and effort continue to benefit and support future generations as it has done for them. Whatever the reason may be, someone should be there to help them understand, communicate, develop and implement that vision of succession. This responsibility primarily falls upon the lawyer. One of the main reasons cited for the failure of family farms to pass to the next generation is the lack of succession planning.4 Developing a succession plan is one of the keys to maintaining the future stability and survival of the family farm over multiple generations, and if the plan can be implemented with success, then each successive generation should be in a position to leverage their knowledge, training and other values to operate the farm for their generation and build stability and support opportunities for future generations. So, how do you go about assisting today’s farming family with their succession plan? The starting point is to understand the basics of succession planning, and that simply transferring the family farm at death to let the next generation decide how to operate it on their own is not a succession plan.