Is There Any Connection Connecting Farm Succession Planning And The Farm’s Legal Organization
A long time ago a notable estate planning attorney informed me that, from his many years of experience, farms and businesses are organized because, in his words, that is the way they were initially organized.
I was young and inexperienced and didn’t fully grasp what he meant when declared one of the most damaging stumbling blocks for success concerning farm succession planning has a lot to do with the manner in which the farm was originally organized many, many years before, not ever modernized.
He explained that farms, when they were originated, were traditionally established as sole proprietorship’s, partnerships, or corporations according to the recommendation of their initial accountant, attorney, banker, or successful friend. That was what these trusted people recommended depending on whatever they knew about the situation then. Plus it had worked out.
Fast forward twenty years.
It is quite likely that the same legal framework is in place. Unless there had been some immediate benefit or threat to the farm they were usually still structured how they were initially set up.
Now that 20 years have elapsed, it’s very likely that the next generation has joined the farm and wishes to be part of its progress. If they along with their spouses will commit to the future of the farm they need to make certain that their efforts will be rewarded, now or in the future – or both.
But no one knows how. After all, the farm continues to be organized the way it was originally set up. Nobody has spent any time considering the alternatives for passing forward the growth to another generation through brilliant planning strategies.
They listen to gossip of how others in the industry have had large struggles for power and are totally dysfunctional both as a business and as a family group. They don’t want this to be their legacy so they try to keep the subject closed with the assurance, “someday this will all be yours” and then change the discussion.
They usually know other organizations very much like theirs where everybody seems happy and at peace with their strategies for succession – everyone seems to be part of the conclusions with whatever has been determined and they are growing.
Maybe they ought to get the name of their lawyer, but no – that might mean they might need to own up to troubles and inform some new person their confidential info. None of these options are attractive for them. It’s no ones business and anyhow, “our farm is unique.”
So they do what most of us attempt to do when faced with anything too distressing to face up to, they take the wait and see tactic. Possibly this will blow over.
In fact, when they were in their twenties (or thirties or forties) their dad’s position on the issue had been “Someday it’ll all be yours!” and it had happened as promised – as viewed with excellent hindsight.
They had not been willing to rock the boat and their husband or wife had been willing (or so it seemed) to go along with the decision from above. They had waited and today they were the owners of the farm business and so the wait and see methodology might not be a bad one.
What they so easily forgot is how miserable, threatened, and humbled they had felt whenever they had to face their spouse after the latest ‘discussion’ with dad.
And they can’t ever comprehend, although they wonder about it occasionally, just how much more successful financially everyone would have been if enlightened planning was in place all those years between the day of that first sit down with their dad and when you assumed ownership.
How much more money would have been in your family’s bank account or in the farm operation itself – as opposed to in the hands of the government due to the avoidable taxes you’d all been forced to pay because of the inefficient transfer process.
In 2007 I reviewed the case notes of farm family clients who have been by far the most successful at making their transition from one generation to another during the last two decades, there is a common thread.
What over 100 farmers who have productively transitioned their farms from one generation to another have accomplished. And also why it has worked for all of them over all that time.
Predicated on that I created “The 7 Keys To Successful Farm Succession” which clearly addresses, amongst other things, the need to reorganize the farm business as an aide to the succession planning process.
Today the options for planning are as good as they ever were and now you can have the information you can use to get the conversation started with your family and your advisers.
Recommended Reading
- Family Farm Succession Planning
- Who in The World Requires a Farm Succession Planning Consultant?
- Are You Someone Who Thinks They Need a Farm Succession Planning Expert and Precisely Why or Why Not?
- Are You Someone Who Requires a Farm Succession Planning Specialist?
- Farm Succession and Strategic Planning Group
