subject: What's The Connection Between Farm Succession Planning And The Farm's Legal Makeup [print this page] Years ago a prominent estate planning lawyer told me that, from his years of experience, farms and businesses are organized because, in his words, that's the way they were originally organized. I was young and didn't understand what he meant when said that one of the greatest stumbling blocks for success when it comes to farm succession planning has a lot to do with the manner in which the farm was originally organized many years before, and never updated.
He explained that farms, when they were started, were typically set up as sole proprietorships, a partnerships, or corporations based on the advice of their original accountant, attorney, banker, or successful friend. That was what these trusted people recommended based on whatever they knew about the situation them. And it had worked out.
Fast forward twenty years. It is quite likely that the same organization is in place. Unless there had been some immediate benefit or threat to the farm they were usually still organized the way they were originally organized.
Now that twenty years have elapsed, it's very likely that the next generation has joined the farm and wants to share in its growth. If they and their spouses are going to commit to the future of the operation they want to be sure that their efforts will be rewarded, now or in the future - or both.
But no one knows how. After all, the farm is still organized the way it was originally set up. Nobody has spent any time considering the alternatives for shifting the growth to the next generation through clever planning strategies.
They hear rumors of how others in the industry have had huge battles for power and are now dysfunctional both as a business and as a family. They don't want this to be their legacy so they try to keep the subject at bay with, "someday this will all be yours" and try to change the subject.
And they know of other outfits just like theirs where everyone is so happy and at peace with their plans for the future - everyone is on board with whatever has been decided and they are thriving. Maybe they should get the name of their attorney, but no - that would mean they would have to admit to problems and tell some stranger their personal details. Neither of these alternatives work well for them. It's nobody's business and anyway, "our farm is different."
So they do what most of us try to do when confronted by something too painful to face up to, they take the wait and see approach. Maybe this will blow over. After all, when they were in their twenties (or thirties or forties) their dad's position on the matter had been "Someday it'll all be yours!" and that had worked out - as seen in perfect hind sight.
They had not been willing to rock their boat and their spouse had been willing (or so it seemed) to go along with the decree from above. They had waited and now they were the owners of the business and so the wait and see strategy might not be a bad one.
What they so conveniently forgot is how miserable, intimidated, and humiliated they had felt when they had to face their spouse after another unsuccessful 'discussion' with dad. And they can never know, although they wonder about it from time to time, how much more successful financially everyone would have been if enlightened planning had been in place all those years between the day of that first discussion and when you actually assumed ownership.
How much more money would have been in your family's bank account or in the farm itself - rather than in the hands of the government because of the unnecessary 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 were the most successful at making their transition from one generation to the next over the last twenty years, there is a common thread. What over 100 farmers who has successfully transitioned their farms from one generation to another had achieved and why it had worked for all of them over all that time.
Based on that I created The 7 Keys To Successful Farm Succession which clearly addresses, among other things, the need to reorganize the farm business as an aide to the succession planning process. You can find it using any search engine.
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. And there are two easy ways to do this, a mastermind group made up of your peers and an Internet conference call tool that allows you to keep everyone in the loop.
