Why Succession Planning is Important for Farm Families
It’s often a challenge to wrap our minds around what will happen to our properties, our assets, and our children once our time is up. However, the lack of planning leaves our loved ones more vulnerable to hardship than if we just take a deep breath and dive into it. Discussing and finalizing a succession plan doesn’t have to be hard when done correctly. It’s something that brings clarity and peace of mind to the family in both the short and long term.
Farm succession planning is the process of planning how your farm will be passed on to the next generation. Succession planning is crucial, but unfortunately, many wait to plan for what’s to come until it's too late. This planning presents its own set of challenges and raises so many questions. What's going to happen when the kids inherit the land? Are they going to get along? Is the farm going to have enough money to keep going? Are the kids going to have to sell the farm in order to stay financially stable? What is the farm legacy going to look like? Are we living and leaving the life that we want?
Farm families face the challenge not only of maintaining the financial strength of their operation but also of passing the farm on without sabotaging family relationships. It is essential to implement strategies and systems to maintain wealth and pass the farm on while keeping family harmony.
It takes true grit and tenacity to run a successful farm. It takes compromise, compassion, grace, and communication to have a close family. While running both, it can often be difficult to prioritize between a successful family and a successful farm, as those lines can get blurry. This must be considered when planning for the succession of the farm. Without a solid plan in place, both the family and the farm will be demolished. On the other side of the coin sits intentional and thoughtful planning. When we plan the future of our own accord, we do not have to prioritize family over farm or farm over family, nor do we have to compromise the financial success of the farm for our love of family.
Farm succession planning is significantly different from other types of wealth transfer planning.
There are often significant assets, however, they are not liquid. To liquidate them will destroy the farm.
One heir or child may have time spent working on the farm. We often refer to this as sweat equity.
In the past when completing farm succession planning, instead of being viewed as businesses, farms were seen more as a family asset. With the increase in values and many other changes in society, this is no longer true. Farms are indeed businesses.
There is often a deep love for the farm, which in many cases has been in the family for multiple generations. There is a tie to the way of life and the land, which is not seen like other traditional businesses.
Succession planning is crucial and the sooner you start, the more choices there are. Another reason to start earlier rather than later is that it is human nature to have negative emotions during times of uncertainty, so there is often conflict when there is no communicated plan in place. Additionally, many people connect love to giving, so if there is a perception of being left out it can create significant animosity. These are reasons why taking clear and decisive action to put a plan in place as soon as possible not only protects your farm from the risk of not having a plan in place but also protects your family from unneeded conflict.
I’ve seen situations where the current generation is not ready to stop farming so they don't feel the need to put a plan in place. In these cases, there is a perception or fear that the plan will be implemented immediately, when in fact most often the plan is intended to be many years down the road. In reality, they need to have a plan in place in case the unexpected happens. This type of hesitation can cause discomfort within the family. The fact is, if there's no plan in place and somebody unexpectedly passes away or can no longer work the farm, the consequences are devastating to both the farm and the family. Therefore a good succession plan is not necessarily the beginning of the end, but rather a plan for transition.
We all play different roles within the family and within the farm. There might be a long history of expectations and responsibilities with the family, but perhaps the farm may have people playing newer, less certain roles. Families may hesitate to put plans in place because they're not confident in the roles that everybody will play. We often find that things can change over time and this is true with both the family, the farm, and the regulations that govern succession planning. However, it’s important to take action based on what you know today. Don’t wait until you are certain of the direction of the farm. Do it now, and if things change, your plan can change. Put something in place that can grow and be modified as your family and the farm change. As roles change, so can the plan.
In addition to potential questions about roles, there may be some hidden animosity between family members that may not be a big deal in itself but can potentially trigger something bigger. For example, these can be in the form of a joke at the wrong time, or a family member that is still mad he didn't get the shoes he wanted in the second grade and takes that resentment out on his brother. Perhaps we cannot undo this unrest through the planning of the farm, or through anything at all for that matter. But, if we do nothing about the farm, that tension is guaranteed to build until it explodes, potentially ruining everything the family has spent generations building and working for. Therefore, action needs to be taken by the people I call the decision makers; the people currently running the brand, the farm, and the assets.
There will be conflict among family members if there is uncertainty about what the future holds. It’s easy to fall into the mental trap that the plan itself may cause conflict. The reality is that at the end of the day, it is actually the lack of planning that causes the most conflict. The lack of a plan is the elephant in the room. Everyone knows it's there and that there needs to be one, but it is being avoided. Take a moment to think about what will happen if you continue to avoid taking action.
There could be continued conflict amongst the family, whether spoken or unspoken. There could be a significant risk to the financial stability of the operation you’ve worked so hard to build. The property could be sold and your family’s generational farm will be in the hands of another. Worse of all, your children could become estranged. Don’t wait. There is zero value in putting this off. Now is the time, and I’m going to walk you through just how to do it.
Once you make your plan, there will come a time to communicate this plan to your heirs. Once you have the conversation, you will realize that the conversation is truly not as hard as you might think. The time is now to take action. A plan is needed to secure your family’s future and the future of the farm. You know this is true and that's why you're reading this book. In the long run, proper succession planning ignites a sense of relief, confidence, and understanding throughout the family.
So much is at stake. You've been blessed with a beautiful family, and a beautiful farm, and no one is promised another day. It's worth it to start the process now.