'If they want to carry on the legacy, they better get something done'
By CAROL RYAN DUMAS
Many veteran farmers and ranchers bristle when the conversation turns to their plans for how their operations will pass to their children.
Those heirs often have their own frustrations that leave them and the operation in turmoil.
Frank discussions about finances, retirement and death can be uncomfortable for farm families, and the passing of a business between family members can lead to disputes that make any decision difficult.
"We are not sure where we are headed. We don't even know if we're going to stay on the ranch," said one rancher who asked that his name not be used.
If it's difficult for people involved to talk with one another about succession, it's even more difficult to open up about it to outsiders.
Michael Stolp, Northwest Farm Credit Services vice president of market research and development, leads the company's Business Management Center, which helps producers with estate and succession planning.
He wasn't surprised to hear about farmers' reluctance to talk about the issue. Many aren't even talking to each other, he said.
"The reason they don't talk about it is fear of the impacts to both the business and family. But these issues don't go away -- they become more and more significant," he said.
Communication is key
"It's fair to say one of the most significant challenges facing family businesses is taxes. But the other one is communication," Stolp said.
Without communication, the situation turns into anarchy, with everyone trying to make their own way without any rules.
"But families can figure it out," he said. "Conflict will occur, gears will grind, but they don't have to grind to the point we drop the transmission out of the truck."
He counsels families to have scheduled, ongoing conversations that include everyone involved, on and off the farm, and make it somewhat formal, writing things down.
"I'm a big believer in tailgate communications. Problem is it isn't formal, and everyone's not involved," he said.
Family members have to think about both the business and the family and the role of each member in the system. They have to discuss how assets and management will be transitioned, and it has to make economic sense. Identifying common goals and values is key in finding consensus.
"The family business includes different perspectives, whether you're the owner, the business manager or family members," he said. "Different perspectives are legit. The key is understanding other voices and roles."
Everyone has a different personality, and those differences affect how problems are addressed and how people affect and react to each other.
"Appreciate the individual differences, and (consider) what's it like to walk in another person's shoes," he said.
If the conversation gets stuck, family members need to remember "different is just different," he said.
"You can get past the silence or violence with mutual respect and mutual purpose," he said.
Conflict can come from different personalities and different generations, but success can come from distilling the business lessons learned, the challenges, successes and the key business drivers.
"Sometimes we might not be on the same page, but it's about consensus and the things agreed on," he said. "You have to understand where the business and people are. Until you understand that, you can't move ahead with succession and transition."
The discussion can then move to the strengths and weaknesses of the business, opportunities and threats, budget and finances, individual roles moving forward, estate planning, and timing of the transition.
"The more sophisticated a business is, the more we need to put these things in place before we need them," he said. "The risk of doing nothing is significant."
Edwin Southfield, a Wendell, Idaho, dairyman, agreed that a comprehensive plan is critical.
A large part of a succession plan "depends on the older generation, if they want to relinquish control," he said.
Southfield's father started milking cows in the 1960s, and he had a business plan in place for his two sons since the 1970s. Now a third generation is entering the business.
Having a plan "is necessary from Day 1," Southfield said. "It needs to be written down in black and white."
It also needs to consider all the scenarios.
"It's not always the older generation that dies first. My brother died in 1986," he said.
If the plan is only set up to hand the business down to the next generation, what happens if things don't go as planned?
People who forego estate and succession planning either can foresee the future, don't care what happens or don't care if the government gets everything, he said.
"If they want to carry on the legacy, they better get something done," he said.
While many farm families struggle with estate and succession decisions, Harry Hoogland's plan is pretty simple.
The Castleford, Idaho, dairyman has no siblings in the business and doubts any of his three children will follow in his footsteps. He and his wife, Vicki, have focused on their wills and purchasing life insurance.
"I try to keep enough life insurance for money to pay the inheritance tax," he said.
He has set up his dairy as a limited liability company and owns all the real estate, the family home and a heifer ranch separately. That way he could sell or lease the dairy and retain ownership of the real estate and heifer ranch, both of which he could also lease.
Hoogland and his father partnered in his parents' dairy for 11 years, but they weren't set up right, he said. His parents owned the real estate and facility. That skewed the tax structure.
"The tax structure is what makes estate planning and succession planning so critical," he said.
While he sees no need for succession planning in his situation, he has some ideas on how succession planning should work.
"If you were going to do that, the parents should probably have a succession plan or entry plan when the first child enters the business," he said.
It should be a written plan everyone understands, and all the children should come in on an equal basis, whether that's sweat equity, a home on the farm, vehicles, utilities or something else, he said. It should amount to a salary plus a percentage of ownership.
"The ideal situation is to have a smooth transition. Siblings should own a majority in their name before the parents pass away so they've divested themselves of the inheritance implications," he said.
Michael Stolp, Northwest Farm Credit Services vice president of market research and development, offers two exercises to help families find consensus when discussing succession planning.
* Family members individually define and record a mission statement with a set of business values and individually define personal goals.
* Share the lists as a family to identify common goals.