Succession planning for farm and ranch businesses has been a popular topic for news stories and meeting workshops during recent years. No one likes to plan for or to talk about his or her own demise, but as primary operators in our agricultural communities become older, these discussions are necessary.
We often hear of operations lost due to the passing of parents and failure to properly plan for succession or tax burdens. If planning has taken place, failure to communicate those plans can be disastrous.
For younger generations, approaching these conversations with Mom and Dad can be an uncomfortable and daunting task. Older generations may not be prepared to pass along management of the operation, and younger generations do not want to appear as if they’re trying to take away control.
However, if these conversations are not held, the passing of a parent or primary owner can result in the loss of an operation, or at the very least, a mess for surviving relatives.
Workshops and articles on succession planning are often directed at older generations who are at the helm of business operations and succession planning. Nevertheless, there are a few tools younger generations can bring to the table to be more prepared for these conversations.
Moderate the Succession Discussion
Navigating the many options for business structure, ownership designations, or tax implications can be overwhelming for most families. Planning for the future of an agricultural operation can be difficult and confusing for all who are involved.
Often, making the investment to invite an experienced moderator to the table will help the process move along smoother when making decisions about the future of the family operation and make the discussion easier for all generations.
When organizing a workshop on succession planning for young ranchers in Montana, I turned to Kurt Alme, president and general counsel with Yellowstone Boys and Girls Ranch Foundation in Billings, Montana.
Alme recommends having everyone at the table for conversations to understand and plan for the future of the family operation. Being able to include all parties involved helps avoid future misunderstandings, helps everyone understand current planning status, and aides in all voices being heard as decisions are made.
One of the challenges for rural families can be finding an experienced counsel or resources to aid in the succession planning process. Laws pertaining to business structure, gifting from parents to children, and estate taxes can vary between states. Having an attorney who is familiar with laws in the state where business is being conducted can make these decisions easier to navigate.
Know the Terms of Succession
A proper succession plan needs to be comprehensive and encompass several areas to successfully guide the transfer of the operation to the next generation. Younger generations can make these conversations easier by understanding a few important concepts.
You are not the first generation to go through this.
Century-old farms and ranches do not happen overnight. Previous generations have gone through transitions before and must have done something right or the business would not exist. Rely on and trust the experience of older generations to do the right thing. Succession plans are not decisions taken lightly.
Fair is not always equal, and equal is not always fair.
In many families, heirs may have different levels of investment in the operation. Realize some may have sweat equity in the day-to-day operations, while others may wish to have their inheritance in monetary form.
Power of attorney is an unfortunate, but necessary, designation.
In the event of a tragic accident or deteriorating health, someone may have to make tough decisions on behalf of other family members. While not always pleasant, understanding who will make those calls and when those calls should be made can relieve some stress from these tough situations.
If in doubt about the complexities and terms of succession planning, valuable resources for more information include University extension programs, local agricultural or small business attorneys, financial advisers, or the National Ag Law Center.
With an effort for open and honest communication, and the willingness to bring in outside advisers, succession planning can be successful to ensure the future of family farms, ranches, and agricultural businesses.
Visit my column on Successful Farming to discover Succession Planning Tools For Younger Generations including:
- You are not the first generation to go through this.
- Fair is not always equal, and equal is not always fair.
- Power of attorney is an unfortunate, but necessary, designation.
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