Disclaimer - The following is meant only for educational purposes and not to be construed as legal or tax advice.
This article will help you organize your farm into a document from which you will create an estate plan, so your advisors understand exactly what you own and how the operation will look when it transfers to your heirs. This serves as your vital first step toward a seamless transition. Most farm families never complete a solid estate plan. Farms are very complex, and this activity will take significant time to complete. If time is of the essence, add details as time permits and do only the basics at first.
This is a written accounting of your farm to help you organize your thoughts into a solid estate plan to inform your legal advisor. The document should be living, meaning that it will evolve over time. Doing this accounting will improve your estate plan and save you legal fees. The following are the major areas of your document that will need to be addressed.
Executive Summary
The Executive Summary is the first section of the document, but the last section to complete. This section sets the tone in summarizing the rest of the document. It should be a one- or two-paragraph description that includes a mission statement explaining why the farm exists and should continue into future generations. A mission statement defines the core purpose that drives your daily operations and powers your continued growth. Briefly state your basic goals for the estate plan and your dreams for the farm after you are gone.
Business Description
Start by describing your farm's history. This is important in establishing your legacy and honoring those who came before you. Details that are not written down are likely to be lost over time. Generations come and go, and their history will go with them. List the current owners of the farm, including your locations, products, and services. Think of it as an investor-ready overview of your farm.
Operations & Risk Management
Add information about your facilities, land, and equipment, including leased assets. Use a recent balance sheet listing assets and liabilities, and then attach it to the end of the document. More detail is useful, but not so much that it doesn’t get done. Use your time wisely.
Itemize your various insurance policies, including crop, life, and casualty. List your stewardship-related production practices, as these efforts will become even more critical in the future. In addition, farming remains a physically dangerous career, so you should outline safety precautions for future generations. Provide details on the physical and digital locations of your vital documents (e.g., deeds, insurance policies, power of attorney, loans, and bank statements). It’s important to include legal descriptions, which are on your recorded deeds.
Production and Marketing Plan
Raising crops and livestock is only part of a successful farm operation, as time spent in the farm office will likely increase in the future. Make a list of crops and livestock sold annually, whether as commodities, under contract, or through direct retail. In your list, include amounts sold to various buyers by location. Be sure to list strategies that have been successful/unsuccessful.
On the production side, document the yield history by field, if available. Soil tests and application spreadsheets will be useful in the future. Put field drainage tile installation maps and records in with the main documents.
Management Roles and How They Will Work When You Are Gone
In this section, carefully outline current roles for management and operations by job title and person, including your vision of roles in the future. When completing this section, evaluate job performance to ensure all employees and partners—both family and non-family—are the right fit for their roles. List the training and experience for each person by job description. Build a list of professional advisors and mentors, agronomists, market advisors, insurance agents, bankers, etc., and add their contact information to your document. Have a list of people to contact in an emergency, and specify who will be responsible for various activities in your absence.
Financial Plan
Although many farms operate without one, make sure to complete your financial roadmap as time permits. If you are on a short deadline, focus on the fundamentals: assets, liabilities, profit/loss statements, and cash flow. This streamlining helps families quickly organize their financial picture when time is of the essence. Include any out-of-state-owned property, whether digital or physical. Write up your financial numbers or hire a professional to briefly outline them in the plan for your legal advisor.
Finishing Touches
Use the major headings in this document to help organize your thoughts. You may want to include input from your spouse or a trusted friend. For a deeper look, consider using an online tool to help put a plan together. The failure to complete your plan could cost your heirs anywhere from hundreds of thousands to millions of dollars and severely damage relationships. Organizing yourself using these suggestions will save time and money in your initial meetings with your legal advisor.