As we build out a legacy process, the successor generation needs to understand the income and expenses they have to manage to be successful. This always starts with a plan.
In my upcoming session at the Farm Futures Business Summit 2016 in Saint Louis in January, we will touch on five things you need to start farm succession planning: Lifetime income, successor preparation, managed health risk, managed successor's risk, and fairness to heirs.
The second step is creating a detailed financial plan for the successor generation to create a road map to a successful transition.
A comprehensive financial planning process will cover five areas of financial strategy to help map out a successful transfer of the business to the next generation. The plan should cover:
Cash Flow and Net Worth Analysis. What is current income and liabilities of the successor generation?
• Assess current situation
• Identify current annual surplus or shortfall
Risk Analysis. What risks might de-rail the transition.
• Long-term disability of the successor.
• Income replacement in the event of premature death.
Investment Management Plan. How much money will we need and when will we need it?
• Identify wealth accumulation goals, timelines and likely sources of funds.
• Evaluate both on-farm and off-farm resources.
Tax Management Analysis
• Review of the last year's tax return to confirm no missed deductions.
• Review income tax and inheritance tax issues as the plan unfolds.
Estate Planning Analysis
• Powers of attorney.
• Buy-sell-agreements for any new entities.
• Healthcare directives.
• Incapacity planning.
At the Summit we will talk about all of this and leave plenty of time to answer your questions. Sure hope you can join us. Follow this link for details: Farm Futures Business Summit 2016.
If this blog has got you thinking about your own situation, get in touch with my office ([email protected]).
Investing in a knowledgeable advisor and thinking about answers to key questions before putting pen to paper can make creating a farm estate plan much less complicated. Use the Penton Agriculture free report, Farm succession planning: Customizing a farm estate plan to get started on your own plan.
The opinions of Rich Dunn are not necessarily those of Farm Futures or the Penton Farm Progress Group.