Advice

Plan for Family Harmony in Your Farm Succession Plan

You’ve worked hard to make the family farm a success, so why leave its future to chance? While 43% of family businesses are without a succession plan1, having one brings together two core elements of your family farm – your business and your family. And by recognizing and addressing potential problem areas, you’re more likely to smooth the way for the next generation. When you add an estate plan, you’ll clarify how the assets of the business leader will be distributed, including business ownership interests.2

Making the case for succession and estate plans

Let’s start by making the case for both a succession and an estate plan. With a succession plan, your family farm is ready for the future with a known leader and clear direction. With an estate plan, you’re prepared for estate-related costs, and it will be simpler and quicker to distribute assets. With both plans in place, you’ve increased the sustainability of your enterprise, prepared the next generation for their new roles, and reduced the potential for disagreements and costly lawsuits.2

Ensure a smooth transition

If you agree with the logic of succession and estate planning, what issues might arise with these plans? You can help ensure a smooth transition by identifying potential problem areas, such as3:

  • Naming an independent fiduciary for a revocable trust or estate. If one child is named and there are multiple children, issues could result from sibling rivalry, in-law involvement, and disagreements about the value of assets to be divided.
  • Providing for both passive and active family members, especially when there are limited nonbusiness assets.
  • Lack of clarity in revocable trust and will provisions. For example, not specifying how prior parental gifts and loans will affect post-death distributions.
  • No advance communication from parents to children about their plans.

Take steps to enhance success

Once you’re aware of potential pitfalls, there are steps you can take to enhance your plans’ success4. First, involve an experienced advisor in the process, such as a fiduciary to administer a revocable trust or an estate after the grantor’s passing. An independent fiduciary, such as a bank or trust company, can dramatically reduce the possibility of conflict between family members and address the legal, financial and business components of a trust or estate.

If your farming business has both active and passive family members, find ways to equalize future distributions. One option is to buy life insurance. Another is to have active children purchase the amount of business assets that would have gone to the passive ones. Experienced professionals can guide you in this area.

Despite your best efforts, family conflicts may arise. That’s why it’s important to include provisions for mediation and binding arbitration to settle disagreements and minimize costs. It also helps to set expectations with ongoing communication about your desires and plans. These conversations prepare your family by letting them know who you’ve chosen to run the business, how they’ll pay for funeral costs and taxes, the reasons for any unequal distributions, and more. This is another area where an independent fiduciary can assist you.

In his article, Succession Planning – The Do’s and Don’ts of Family Succession, Andrew Beattie provides additional advice on succession and estate planning for family farmers, including:

  • Start with needs and objectives (e.g., retiring generation needs an income, farming generation needs a viable business).
  • Begin early and take your time – succession is a journey, not a destination.
  • Understand the “What ifs” and “D” words: death, divorce, disagreement, disability.
  • Formal agreements are essential – they should be clear, concise and updated.

Mr. Beattie also sheds light on why succession and estate planning are especially complex for family farm businesses:

  • Family connections have an emotional component, and the topics involved in succession and estate planning can be uncomfortable to discuss.
  • Children have different types of involvement in the family farm, and may be of different ages and life stages.
  • The farm often makes up the majority of the family’s wealth, yet the return on this asset may be low and inconsistent. This makes it “difficult to ‘pass on’ a viable farming business and have an equal or even distribution of assets.”5

How we can help

To preserve family harmony and enhance your plan’s success, let us work with you to navigate the steps to begin estate planning. Our Wealth Management team of experienced professionals is ready to support you with trust administration and estate settlement. They’ll partner with you to address key issues, such as who’s taking care of you in your older years and who’s helping now on the farm. The team can support you in talking with your children about your estate plan, and guide you through some initial considerations about who will succeed you in running the farm.

Looking for help with estate planning for your family farm?

You can count on our Wealth Management team to provide expertise and financial protection for your family business. Our experienced professionals are ready to support you with trust administration and estate settlement.

To get started, call us at 1-855-383-4301, 8:00 a.m. to 5:00 p.m. Central Time.

Sources
1 “The family business sector in 2016: Success and succession.” pwc. https://www.pwc.com/gx/en/services/family-business/family-business-survey-2016/succession.html
2 “Estate Planning vs. Succession Planning – What’s the Difference and Why Are They Important.” TDT CPAs and Advisors. https://www.tdtpc.com/2018/04/estate-planning-vs-succession-planning-whats-the-difference-and-why-are-they-important/
3, 4 “Think of family harmony as well as assets during estate planning.” Timothy P. O Sullivan, The Wichita Eagle, 8/20/2009. https://www.emprisebank.com/files/documents/Think_of_family_harmony_as_well_as_assets_during_estate_planning.pdf
5 “Succession Planning – The Do’s and Don’ts of Family Succession.” Andrew Beattie, ProAdvice Pty Ltd., Grains Research & Development Corporation. https://grdc.com.au/resources-and-publications/grdc-update-papers/tab-content/grdc-update-papers/2014/08/research-update

Documents