Published on Thursday, July 04, 2019
Farmers work hard each day to provide for their family and to improve the land for the next generation. Simple enough. But working out the mechanics of actually passing that land on to the next generation — that doesn’t come so easy. Let’s go ahead and get some scary words out in the open: distasteful, tacky, greedy, morbid, hard. All told, succession planning can be a real bummer. But avoiding the issue can result in something worse than all of those: family discord.
We are tackling this discussion head-on by consulting with two experts on how to get started with succession planning. Dr. Michael Langemeier (ML) is the Associate Director of Purdue’s Center for Commercial Agriculture and is also a professor in the Department of Agricultural Economics. Brian Doak (BD) is a Certified Financial Planner and president of Doak Financial, where he consults with farm businesses.
Q: What is the biggest mistake you see in succession planning?
ML: Procrastination. Another mistake is making a plan and then not communicating it to others who are impacted.
BD: Honestly, doing nothing. Or copying what the neighbor did. Their family and dynamics are different. Another mistake is trying to treat all your kids the same. That isn’t real. Titling things jointly with the kids isn’t as simple as it seems. The other one is retiring and having an auction — there are huge tax consequences.
Q: How do you prepare to start this conversation?
BD: Figure out what you envision — not what should happen, or what you think should happen. Focus on what you would really like to see.
ML: Think about the following questions: What are the retirement needs of the older generation? How many family members are going to farm in the future? In addition to assets, how am I going to transfer managerial responsibility?
Q: What’s your favorite strategy to address non-farming family members?
ML: Two important concepts need to be addressed: first, fair is not necessarily equal. The younger generation may have been paid a wage that is well below what they could have earned elsewhere and may be responsible for taking the older generation to appointments, etc. That’s the second important concept: sweat equity.
BD: Everyone assumes that everything should be equal. What is fair is not always equal. If one son isn’t farming, he doesn’t need a third of the farm. The other point is, should they get physical property or access to the operation? Too many farm families go with what’s equal and not with what’s fair.
Q: Who do I involve in this process outside of the family?
BD: It starts with the family and it should be a conversation: “This is what we are thinking.” I invite all farmers to bring this up to their families and make this a family discussion, followed by separate individual conversations. Eventually, the financial planner, estate planner, lawyer, CPA, and insurance provider all need to sit down at one table ideally.
ML: At a minimum, an attorney and the tax accountant.
Q: How often do you revisit the plan?
ML: This depends on the family and business. As things change, the plan needs to be adjusted.
BD: Life changes, right? It is a work in progress. You should revisit your plan every five years.
Summing It Up.
Some closing thoughts from Brian Doak sum this up nicely: When you meet with your family, it helps to know which hat you are wearing. “Am I wearing an owner hat or a staff hat?” Wear the family hat during that family meeting. When you talk about succession, talk about not only ownership, but management, and government of the business. It could be three different people or three different teams. Ultimately, it is all about family harmony, right? That’s the biggest thing.
We’ve all heard the horror stories of what can happen when there is no clear succession plan for a farm. I hope this article can be the nudge you need: have the conversation. Start with your spouse, involve your family, and then meet with professionals. Farmers deal with weather risk, market risk, the physical risk of dangerous work — don’t risk the peace of your family. Say the scary words, have the conversation and make your succession plan sooner rather than later.
For more information, you can reach Dr. Langemeier at mlangeme@ purdue.edu or 765.494.9557, or Brian Doak at firstname.lastname@example.org or www.doakfinancial.com.
Author: Samantha Miller
Categories: CropTalk, 2019
Tags: CropTalk, 2019, succession planning