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December speaker focuses on succession planning

A festive group was on hand for The Chicago Farmers’ in-person meeting at the Union League Club on December 13^th. Some 60 people were in attendance to hear Roger Leach, Vice President and Farm Manager with U.S. Bank Wealth Management, discuss succession planning.

Providing a brief historical overview of agriculture in the United States, Leach noted that farming expanded quite a lot during the 1970s, only to “crash and burn” in the 1980s when farmland values dropped and decimated the financial portfolios of many farmers. But fortunes turned around in the 1990s when agriculture made a comeback. In the early 2000s, farmland values increased over 122 percent, said Leach. During the last six months of 2021, farmland values increased between 15 and 20 percent, depending upon where the acreage was located.

Leach gave an overview of a farm manager’s role and related through anecdotes and personal experience how a good farm manager can guide a land owner’s decisions on improving the land; bring the right tenant to the land owner; oversee the installation of drainage tile; offer the pros and cons of wind farms and solar energy; help to develop timber land (in some instances actually plant the trees) or build hunting preserves; and recommend the carving out of a parcel of land from the farm acreage that is set aside for grandchildren, related Leach.

Farm managers also play key roles in succession planning. “Family dynamics can be a stumbling block in succession planning discussions,” said Leach. “The farm manager’s role is to give the client peace of mind as they think through the possibilities. I have recommended that people consider trusts because the land owner’s wishes are on paper and clear to the family members.”

He noted there are many more things involved in today’s agricultural interests that land owners have to be aware of: alternative energy solutions; rental options; farm program elections; and grain marketing.

When land owners and farmers are in the midst of succession planning they have to consider if the farm continues as a working operation, becomes an income producing asset for retirement, or is a legacy asset. Furthermore, it is important to be sure one has the right people on the succession planning team: attorney, accountant, financial advisor/planner, and family members.

Leach noted that 70 percent of first generation operations don’t successfully transfer to the next generation because of lack of planning; 90 percent of second generation operations do not make it to the third generation; and 96 percent of third generation operations do not survive to a fourth generation.

He said that a key issue for farm owners is communication:

• Determine the people that should be involved
• Understand that wealth in the farm is often concentrated in land, buildings, and equipment
• Clarify the division between the farming and non-farming family members, “fair is not always equal”
• Understand how an untimely disability of the operator impacts the business
• Determine how a long-term care event would impact the transition planning

Additionally, Leach said that the land owner has to determine what type of legacy he or she will leave:

• Is there a family member who wants to continue to farm
• Should the farm be a land legacy for the family
• Should the land be sold

He also cautioned that if a trust is formed, ensure that there are directions in the plan that a farm manager can follow. Leach also noted that realism plays a role. “Sometimes there are farms that are not worth keeping,” he said.

Leach said that it is difficult for the farmer to give up decision making, but things to keep in mind during the succession planning include:

• What is the plan to transition the farm from an operating farm entity to an income-producing investment?
• Is the operator willing and able to be a manager or landlord?
• Would the operator be able to find suitable tenants committed to maintaining the farm?
• What are the long-term goals for the farm?
• Is the current ownership ready to share control of the operation?
• Is the next generation committed to farming?
• Has the next generation been groomed to take over the operation?
• Can family members work together?
• Can the income support the family?