There is more to farm transition and estate planning than having a will.
Financial and business planning, family dynamics and emotion all figure in the process, and serious time and management must be applied to find the right solutions.
Jolene Brown, a farm transition specialist from Iowa, said in an interview before a Royal Bank sponsored seminar that parents and children can take steps to ease the intergenerational transfer and avoid the resentments and mistakes that can destroy the farm and the family.
The family must first decide whether it wants the farm business to continue operating. If so, then the work begins to develop a process to transfer a viable operation to the next generation and provide for the exit of the present manager, the parents.
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“The biggest thing you have to realize is that if you want the business to continue, you have just agreed to replace yourself,” Brown said.
That is not easy. For most people, it has been a long road from labour to management to leadership.
“So at the pinnacle of your career, you get to be labour again.”
The ultimate and biggest tasks the parent owners take on are the decision to structure the transition, do the coaching and give up responsibility to allow others to learn while they are still there to offer guidance.
Parents must also decide who gets the business. Brown said it should be the person who has the right characteristics to develop the farm’s success or perhaps change its orientation to match the skills of the successor.
Parents should not feel they have to split the operation equally among their children.
“You do not owe your kids the business,” Brown said.
Parents owe their children the effort to teach them morals and values and the opportunity to get a good education, she said.
“Your job is to help them grow, then let them go.”
When someone new is brought into the farm business, it is important to make sure that enough money will be generated to provide all participants with enough money to live.
“I say to the senior generation: take care of yourself first. Your kids do not have to start where you are today,” Brown said.
Children will likely need an off-farm job, at least at the beginning. Parents should have planned for retirement by building non-farm investments, such as a retirement saving fund.
“I like to see 50 percent of their financial income, when they retire, come from outside of the business.”
Brown said children should realize that their parents’ farm business is not their birthright.
They should see their role in the transition as one of applying for the job and amassing the skills and experience to be the best candidate to take over the operation.
Before they get involved seriously in the family farm, they should work for someone else for at least three years and perhaps longer, depending on their age and maturity.
This teaches them work ethic.
Brown also likes the idea of finding employment in other countries to get a broad life experience.
“They get to learn on other people’s money. They come back with the confidence, not dependent on Mommy and Daddy patting them on the back, but having earned the right to be an employee and perhaps manager based on what they have learned.”
Brown has advice for both parents and children: get things in writing.
“A conversation is not a contract,” she said. “Farmers and ranchers lie.”
The three biggest lies are:
- Work hard and one day all this will be yours.
- I’m going to retire.
- Don’t worry about your brothers and sisters, they have their jobs and they aren’t interested in the business.
“The more you work with family, the more you have to have in writing,” she said.
Once the transition process begins, it is a steep learning curve, and the family will need to draw on outside experts, she said.
“They are going to do things they’ve never done before. They are going to be glad to pay for an attorney and an accountant to get some things done.”
