As tax season descends, the agriculture economy is still reeling from yet another year of low commodity prices and weather challenges. And with an average age of US farmers nearing 60 years old, the question of who will manage the farm in the future is on the minds of many.
A generational collection of tradition and accumulation, the farm is more than a business; it is a life – a way of life – and few decisions will be as difficult as making the succession transition.
To better understand the conversational dynamics of the family-farm succession, we (ST) sat down with Farm for Generations, farm succession planner, Lynn Hennigan (LH)
ST: How does the conversation of succession typically begin – on the farm and with you?
LH: It usually starts when the snow is blowing, and there is time to think about what’s next. That’s when I get phone calls to talk about succession planning.
ST: What is the next step after that initial phone call?
LH: The initial call leads to a couple of hours with the key decision-makers to understand all the pieces and parts of the farm, farmers, and non-farm family members. Then we decide if the time is right. If they decide to move forward, I recommend they broadly follow through this list of steps.
For me, the official process always starts with a question of “what do you like to do” to the younger generation stepping into the farm management role. I’m a very "strengths and personality" driven person. A farm isn’t a job; it is what they will do for a lifetime. They need to love what they are going to be doing.
ST: What are the six steps, and where did you learn them?
LH: I didn’t learn the steps from a book or any coursework, I compiled these steps after listening and learning from farms that have had successful generational succession. The steps may vary, but each step is always necessary to progress in the process and end with a successful transition.
- Let the younger generation pull the succession.
If there isn’t an interest from the younger generation, a succession won’t be successful. There’s a level of buy-in and investment that the younger generation has to make, and it isn’t all monetary.
- You have to have feasible financials.
If massive debt or unprofitable ventures in a succession plan is a recipe for disaster. There has to be at-least a cashflow-even opportunity, and everyone involved has to understand what the financial opportunities and challenges are.
- There has to be heard communication.
Everyone involved in the succession needs a voice at the table when planning a succession. Not everyone has to agree, but everyone has to be acknowledged and heard.
- An agreement has to be reached, and a time-line must be identified.
The fourth step is usually the most challenging. Making plans and discussing what will happen is a lot easier than putting everything into motion. A timeline has to be part of the conversation, and actions have to be set in motion to keep successions from stalling-out.
- Recruit professionals to put the structure in place legally.
Often trusts, wills, LLCs, purchase agreements, buy-sell agreements, appraisal, strategic tax-planning, charitable planning, corporation restructure, life insurance, etc. are necessary components to achieve the long-term vision. It is important to explore and find professionals that you can trust to provide excellent guidance and follow the process through to completion. Likely, you will have needs that are outside the norm for your local professionals, don’t be afraid to encourage your local professional to work with a national expert on the topic at hand.
It is a good idea to appoint one person involved within the succession to be the ‘project manager’ to keep track of to-dos and deadlines. Also, look at the time you are purchasing from professionals as an investment—making time to do it right the first time is worth a tremendous amount. Legal documents must also be signed before they are enforceable, waiting until a rainy day leads to documents never being executed or valid. Finding that out after or during an issue is gut-sinker.
- Do it the new way with gratitude for the change.
There are so many emotions involved in each of these steps and in the transition of the farm. At the culmination of a succession plan, each person should be grateful for the change— it should come from both sides! The younger generation, those moving into the management role, should be grateful for the opportunity. The operator, who is choosing to slow-down, should be grateful and able to rest easier knowing that their lifetime of work will continue to grow through the efforts of someone who is grateful and eager to do it!
ST: It sounds like a cut-and-dry process, but I bet it is much more challenging when everyone is sitting around the kitchen table or in the attorney’s office.
LH: It really is. What happens on a lot of farms is they stall out at one of the steps, and then they are in limbo. They can’t ever get past a particular point of contention, and then when the farm owner passes, they quickly learn they are in a position to have to buy everything at once from the heirs at market value. And that isn’t always financially viable.
Getting through the succession-transition process is much like moving a group of cattle from one place to another – you follow a rhythm of pushing and backing off until you get through the gate and on to the next stage of normalcy.
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