Family-owned farms may run into succession problems when an heir announces that he or she has no desire to take over the business. By not creating a contingency plan, an unexpected emergency could leave dependents without reliable income streams. Even if an heir has worked at the family farm for several decades, taking control of the helm on his or her own might not seem appealing.
As reported by Forbes magazine, a 2016 survey of family businesses found that more than 40% of the respondents did not have a succession plan. Surprisingly, about 75% of the businesses surveyed also stated they intended to keep the business in the family for the next generation.
Hiring an outsider to manage a business
A succession plan generally requires training a competent individual to manage the enterprise. Depending on a family’s long-term goals, a business may need a new ownership structure. A farm owner may, for example, need to recruit a qualified outsider to operate and manage the business under the instructions of a trust.
Several aspects of transferring a farm’s ownership to a trust require consideration to prevent a loss of income upon the owner’s death. Creating a trust as part of an estate plan may allow surviving heirs to continue to receive a portion of a farm’s revenue without disruption or a requirement to work there.
Avoiding a farm auction or quick sale
Without a business succession plan, heirs may find themselves in need of cash. While a farm auction may provide cash quickly, capital tax gains could also eat away some of the proceeds, according to Drovers magazine.
Heirs deserve their full share of assets and property, even if they do not intend on continuing the family business. An estate plan may provide the necessary steps to prevent them from losing access to an inheritance.