Farm Succession Planning: 6 Steps Every Family Farm Should Take

Most Idaho and Utah farm families believe they have a succession plan. When someone asks to see the document, they discover they have a conversation, not a plan. The gap between the two is where operations get sold to pay taxes or split between heirs who never agreed on the split.

The USDA and university extensions have said for years that only a minority of family farms have a written succession plan in place. Whatever the exact number, the operations that survive the transfer are the ones that treated the plan as work, not intention. Six steps carry most of the outcome, and a Cache Valley cattle operation, a Bingham County potato operation, or a Rexburg row-crop can complete the first three within a quarter.

1. Write down what you own and how it is titled

Most farm families cannot list every parcel, entity, account, and piece of equipment from memory. Step one is a real inventory:

• Every parcel: deed of record, current use, encumbrances, and legal description.
• Every entity: current members or shareholders, operating agreement or bylaws, and current registered agent.
• Every account: bank, brokerage, retirement, and life insurance, with beneficiary designations in writing.
• Every piece of major equipment: title status, financing, and estimated value.
• Every lease: ground leases, equipment leases, cash-rent agreements, and share arrangements.

The inventory is the foundation for every other step. Without it, valuation is a guess and the transfer plan is a hope.

2. Have the family conversation

The conversation is the step that gets postponed the longest. It is also the step that determines whether the plan is workable or theoretical.

The questions to answer, in order: Who wants to be on the farm? Who wants off? Who is realistic about the work involved? How do we treat the child who ran the operation for the last fifteen years versus the child who moved to Boise or Salt Lake City in 2003? Is the goal that every heir gets equal value, or that the operation stays intact?

These questions have wrong answers. They also have honest answers that keep families intact. Deferring the conversation until the founding generation dies is where the operation gets sold at auction.

3. Get a real valuation

Not a rule of thumb. Not the county assessor’s number. Not what the neighbor got for his ground last spring. A proper valuation of the operating farm that a lender or the IRS would accept.

An operating-farm valuation is not the same as a real estate appraisal. The land is one input. Equipment, quotas or contracts, working capital, and going-concern value all matter. A real estate appraisal of the dirt is fast and cheap and answers a different question. A business valuation of the operation takes longer and costs more and answers the question the transfer actually turns on.

4. Choose the transfer tools

Every real transfer uses a combination of tools:

• Annual gifting under the §2503 exclusion.
• Lifetime exemption use for larger blocks now.
• Entity structuring for valuation discounts.
• Installment sales at the applicable federal rate.
• Life insurance to equalize off-farm heirs without disturbing the operation.

Which combination fits depends on the family, the operation, and the timeline. A large multi-generation ranch usually needs entity structuring and gifting. A smaller operation with one on-farm heir and one off-farm heir may need mostly life insurance and a simple installment sale.

5. Update the documents

The plan is only real when the documents match. In one review cycle:

• Wills and revocable trusts, aligned with the plan.
• LLC or partnership operating agreements, including buy-sell language.
• Buy-sell agreements between family owners with real triggers and real funding.
• Beneficiary designations on retirement accounts and life insurance.
• Powers of attorney for property and health decisions, in case of incapacity.

A conflict between an operating agreement and a will is where litigation starts. Reviewing every document at the same time closes those gaps.

6. Set the review cadence

A transfer plan built in 2020 has already changed. Tax law changed. The family changed. The operation changed. A working plan gets reviewed annually at year-end and formally reset every three years or after any major event.

The annual review is short: a sit-down with the CPA and the attorney to confirm that gifts happened, valuations were refreshed if needed, and the family situation still supports the plan. A major event (marriage, divorce, death, disability, sale, major expansion) triggers a formal reset rather than a small edit.

The role of the CPA and the attorney

The CPA runs the tax math. What does a gift cost in exemption use, in basis carryover, in current-year income to the donee? What does an installment sale look like in cash flow to the seller and the buyer? The attorney draws the documents that implement the plan the CPA and family agreed to. Neither one alone is a plan.

This overview is general information, not tax advice for your specific operation. Talk with Cooper Norman’s ag CPAs and our farm valuation service before the next tax year closes. Start the conversation and complete step one this quarter.