Do you have a plan in place for transferring your farm business to the next generation?
It may be a difficult topic to address, but the faculty at Cornell Cooperative Extension wants farmers looking to bequeath their operation to their children to know what they should be considering and what measures they should take. Whether you are currently working on a succession plan, currently implementing one or have never given the matter much thought, these helpful hints can make preparations a bit easier.
- Build your team of professionals.
A farmer has to build an effective team for their overall succession plan. But who should be included?
“You have to choose wisely,” said Maryellen Baldwin, farm business manager for CCE Oneida. “Building a professional team is really different for every operation. Some may want an attorney present, or a financial planner, or an accountant, as well as maybe their insurance professional or bankers. It all really depends on how comfortable you are with those individuals and what best fits your needs.”
Baldwin advised that when vetting professionals, keep two questions in mind: How do they behave? And what do they know? A farmer will need people who will listen, behave professionally and refrain from getting adversarial. These professionals should also be knowledgeable in their fields, having the relevant experience.
“Remember, these professionals work for you,” she added. “Don’t ever be intimidated when asking questions, and don’t let friendships stand in the way of making a good professional choice.”
- Stay on track with a facilitator.
“One of the questions that you might want to ask yourself if you’re in the early stages of planning is what some of the circumstances might be that would require bringing a facilitator in,” said Judy Wright, senior agriculture economic specialist for CCE Seneca.
Wright explained that facilitators can act as moderators. They can also help to identify professionals that can best advise a farmer in their succession plans. She described the role they play as “almost a cheerleader” – someone to encourage the farmer and keep their succession plans on track. Accountants, farm advisors, Extension educators and a trusted friend not financially connected to the farm can all make prudent choices for a facilitator. Wright singled out NY FarmNet as a resource for farmers looking for advice.
- Set SMART goals and delegate action steps for accountability.
“Setting SMART goals is very important to move the succession planning process forward,” Wright said. She distinguished SMART goals from more generic goals: SMART goals are Specific, Measurable, Achievable, Relevant and Timed.
“Make an unambiguous plan as to what your succession plans are, map out how you’re going to get there, who is going to do what and when must it be done by,” she said. SMART goals do not leave any room for miscommunication or misunderstanding.
- Manage uncomfortable conversations.
“You will likely have to have some uncomfortable conversations,” Baldwin conceded. People generally shy away from conflict, and discussions about death and inheritance are rife with conflict. She recommended incorporating the “5 Cs” of communication to make having these conversations easier: Be clear, conscious, curious, compassionate and concrete.
- Manage off-farm heirs.
“What are the expectations? What are people thinking about?” asked Wright. Often family farms will have some children working on the farm while others leave and have their own lives and careers elsewhere. It’s important to have all heirs on the same page when they come into their inheritance.
“What is equal or equitable? Equal comes when everybody’s going to get an equal amount regardless of the need or situation,” Wright said. “An equitable inheritance is where each child receives what’s fair given their current circumstances.”
Joint heirs must also remember that the familial line doesn’t end with them. Wright gave the example of two brothers who inherit a farm from their parents and work very well together. While the brothers might enjoy working with each other, they might not want to work with their brother’s surviving spouse or children. A buy/sell agreement can be useful in this situation.
Also known as a buyout agreement, a buy/sell agreement legally binds co-owners of a business in situations where a co-owner dies or leaves the business. An insured buy/sell agreement is often recommended by business-succession specialists and financial planners to ensure that the buy/sell arrangement is well-funded and to guarantee that there will be money when the buy/sell event is triggered.
by Enrico Villamaino