Why Plan for Farm Succession?
Despite farm groups working hard to advise farm owners of the need to plan for their eventual succession, many farmers appear to be reluctant to plan properly. Though there are many reasons, studies show that the number one reason is that it is “too early” to begin planning. But is it really too early, or is there just an unwillingness to plan for succession? All farm owners have to leave their operation at some point. If you are one, when you do, you will want to make sure it is on your own terms. This article focuses on family farm transfers. An outright sale to a third party might avoid some of the issues described below, but succession planning remains an important consideration in these situations.
In my experience at Collins Barrow, I have found that the most difficult issues when developing a succession plan are the “soft issues.” These are likely the issues that keep farm owners from starting the planning process. Planning for succession is a very emotional and, at times, uncomfortable process. Many owners will say that the more important issues are the technical ones, such as strategies for minimizing income taxes. These are indeed important issues, but they are usually more easily resolved if the soft issues are addressed first. It is the soft issues that can derail even the most carefully considered plan.
Soft issues can include factors such as unresolved conflict within the family, lack of trust among family members and other key stakeholders, unrealistic expectations of some family members, fear of losing control and fear of putting the family wealth at risk. Farm owners face many difficult questions. Ask yourself: how do I deal with unreasonable family expectations or the feelings of entitlement that children may have with respect to my farm? How do I deal with children who do not want to work in the farm business? What will I do when I retire? Can I continue to play a role in the farm business? One of the first steps I take when assisting clients with succession planning is to interview each of the key stakeholders (family members, key employees, etc.). I want to identify areas of common interest that can be built on to help move the plan forward and start establishing goals that will give the plan focus. I also want to identify potential obstacles, which are normally the softer issues. If the plan is to have any chance of success, these issues must be addressed.
Soft issues normally arise from a lack of information, creating uncertainty and confusion. Dialogue among the key stakeholders will fill in the information gaps and remove uncertainty, reducing potential conflict and allowing the participants to move beyond these issues. Ignoring the soft issues does not make them go away. Preparing the right succession plan requires a team approach, ideally involving someone who has facilitation and mediation skills and experience with farm succession planning. This person will bring the soft issues to the surface in a constructive manner so they may be resolved.
The team should also include a group of professionals (e.g. lawyer, wealth management and investment advisor, consultant, accountant, banker) who will work together to develop your succession plan. In most cases, these will be advisors you currently engage, who have knowledge of your business and personal affairs. They bring the necessary skills to the table to create a plan that is consistent with your goals. But it is important that they work together. If they work in isolation, the plan is likely to include recommendations that are inconsistent, leading to frustration and possibly abandonment of the plan.
It is never too early to start planning for your succession. The earlier you start, the easier it is to implement the strategies required to achieve your goals. Succession planning and implementation is a long-term process, not a one-time event.
Proper succession planning will help you:
- maintain family harmony;
- ensure the continued success of the farm operation after you leave;
- protect the livelihood of the people that mean the most to you;
- maximize the value you receive on the sale of your farm;
- minimize income taxes;
- ensure you have the wealth you require to live comfortably in retirement; and
- meet your personal and farm business goals.
Contact your Collins Barrow advisor to discuss how we can help in preparing your farm succession plan.
Meet the Author
Peter Hobb
Information is current to January 6, 2016. The information contained in this release is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.