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5 questions to a successful succession plan

Ron Hanson for Progressive Cattle Published on 24 June 2019
cattle grazing

The actual transfer of farm ownership as well as the transition of management control to the next family farming generation is often a journey with many emotional struggles and potential conflicts involved.

Succession planning is especially difficult for older parents simply because it takes them out of their “comfort zone.” Who wants to talk about death? Who wants to admit that someday I will not own or manage my farm? It forces family members to discuss issues they would rather ignore or just pretend will never happen.

More importantly, succession planning requires farm families to make life-changing decisions (putting their farm into a family trust or an LLC). Bottom line, decisions have to be made and actions implemented to accomplish a smooth transition to the next farming generation.

Unfortunately, there are several difficult questions farm families must deal with to accomplish a successful farm succession plan. The challenge is whether family members can discuss these issues and resolve potential conflicts without disrupting the farming operation due to personal disputes or legal problems. When that happens, very few farming operations survive to the next generation.

Based on my experiences counseling with farm families, along with my professional travels speaking to farm groups, I believe there are five questions that must be addressed during this farm succession planning process. The inability to work through these situations results in a failed attempt to pass on a farm to the next generation, thus putting an end to a family farming legacy and ruining the dreams or hopes of younger family members.

1. Who is entitled to someday owning the family farm?

I always ask parents two bottom-line questions: Is there someone who you really want to someday have your farm? Is there someone who will never own your farm? This quickly becomes quite emotional. When it comes down to money, wealth, property and especially land ownership, who fits this title of “family?” Is it just blood-related family members who will end up with the farm? What about in-law family members involved working in the farming operation? Could they have a share of ownership?

2. Are parents willing to treat all of their adult children fairly and equitably in their estate?

Favoritism among adult children quickly causes sibling jealousies. This results in grudges and resentments which often destroy family relationships. Parents love their children. That is never the issue. The issue is simply fairness. That is the challenge parents must address for their adult children. Family farming operations are the most difficult to handle in terms of fairness, since some children worked harder – and some children actually care more than others (while some just see the money and what they might inherit from their parents’ final estate).

3. When will this transfer of farm ownership and sharing of management actually happen?

Parents have worked extremely hard and personally sacrificed for the success of their farm. They have overcome many financial struggles to accomplish their farming dreams. Consequently, parents often retain total ownership (as well as control) until retirement or even until death. Thus, parents usually hang on too much for too long. Keeping absolute control can be extremely powerful, especially when you still have total ownership. But that can be a mistake to the succession planning process.

4. What is sweat equity worth when determining a fair selling price for a family farm to settle a farm estate?

This is a critical question for the adult farming children who returned back home and worked for little wages helping their parents build their farming operation. Often, they made possible a large part of their parents’ final estate. Do the other non-farming children realize this contribution of sweat equity? If the adult farming child must someday buy out the other sibling to keep the farm or buy out the parents so Mom and Dad have an income stream for their retirement, what is a fair selling price when a farm must be sold within the family?

5. Are family members able to work together and agree upon a succession plan for the future of their farm?

If family members fail to reach agreement with each other and are unable to work through this succession process together, nothing will ever happen. No farm ownership succession plan will ever be put in place. Bickering and fighting can become a road block to the planning process.

The key to finding answers to these questions is whether a family has a vision for the future of their farm and a commitment to continue their family farming legacy for future generations. This vision becomes the blueprint for developing and implementing a successful succession plan and provides family members with the guidelines necessary to accomplish their planning goals. Without this agreed-upon vision, it is difficult for farm families to build cooperation throughout the planning process. A strategy for success is to strive for family harmony and to create unity between family members through this process.

Family members must find a way to communicate their expectations with others. Remember, openness and honesty build trust and respect in a family. Secrets only cause conflict and quickly destroy family relationships. Never underestimate the power of effective communications when continuing a family farming legacy for the next generation and building stronger family relationships for the future.  end mark

PHOTO: Nobody wants to talk about death and the transfer of farm ownership, but avoiding these succession questions will leave the next generation to sort them out on their own – and it might not be pretty. Photo by Mike Dixon. 

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