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Succession planning is a crucial component of risk management

New analysis from Texas A&M considers the impact of proposed tax legislation on transitioning farm and ranch estates and several ag economists say it makes succession planning even more important.

Ag economist Joe Outlaw with Texas A&M University’s Agricultural and Food Policy Center says farmers often don’t realize just how much money is tied up in land and assets.  “The long and short of it is when you look at this analysis the elimination of stepped-up in basis impacted almost every one of them,” he says.  “Why?  Because there is a lot of farmland out there that has been in families for quite some time and the basis has never changed from the initial purchase.” Outlaw says they also examined the impact of reducing the amount of estate tax exemption and while it wouldn’t impact as many farms, the impact would be significant.  And if both tax provisions were implemented, he says 98% of farms and ranches would be impacted. 

However, Ag Secretary Tom Vilsack continues to emphasize that there will be protections for farms and ranches.

University of Missouri livestock economist Scott Brown says succession planning is a crucial risk management tool for farms and ranches wanting to pass their operations from one generation to the next.  “Too many people are postponing it, not wanting to have hard conversations,” he says.  “Find someone who can help you sit down as a family and go through that process.  There may be pain along the way, but the end goal here is certainly important to many of these operations to move forward.”

University of Kentucky’s Kenny Burdine it all starts with asking the next generation a very simple question.  “Do you want to own this farm 20-years from now,” he says.  “And sometimes, simply knowing what the goals are of everybody involved, and then taking that to someone who can help you put together a plan to get you there.”

While those conversations may be difficult to have, all three economists suggest having them sooner rather than later.

The economists made their remarks during Brownfield’s recent Quarterly Market Outlook webinar.

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