Preparation Pays In Succession Planning Process

Preparation Pays In Succession Planning Process

Succession Planning-Passing the keysSuccession planning can be a fearful topic for any business — addressing an exit from a viable operation while ensuring the future of it. Whether you are just taking over a farm or a seasoned member of the agriculture community, a succession plan is a necessary evil for everyone. So why do so many growers avoid planning for the future and assuring a successful transition to the next generation? “There’s not a sense of urgency,” says Scott Swaim, MidAtlantic Farm Credit’s area lending manager. “(Growers say) ‘we’ll deal with this tomorrow,’ and tomorrow never comes.”
Trent Hilding, a lawyer who specializes in agriculture law from Edmore, MI, has the unique position of still actively farming while focusing his law efforts on advising farmers and agribusiness on farm succession planning. Hilding knows firsthand how important succession planning is to the viability and continued success of an operation. “I’ve seen a divorce and death destroy neighboring farms,” says Hilding. “The challenge of how to protect this is what drove me to law school.”


An important skill to have for succession planning is communication, which can be a challenge, given the sensitivity of the topic. A key item to remember is that the process takes time. The best way to implement a good plan is to allow time for a gradual transfer of management and assets. This step will enable not only an effective transition, but also can be enacted when something unexpected happens, says Hilding. “A plan created on your deathbed can work, although it is not the best way to implement a viable plan,” he says. “To be really successful, plan ahead, review, and revise often.”

Tom Truitt, chief operating officer, MidAtlantic Farm Credit, agrees. “The sooner you can have the whole succession piece — which is a huge risk for some of these multigenerational farms — that directly impacts the financial well-being of that farm.” This includes dealing with inheritance or transfer taxes.

Understand The Challenges Ahead
Truitt notes that initial conversations about succession plans must involve discussions about retirement and how involved the older generation wants to be with the process. Retirement and transition means different things to different people. Sometimes growers want to transition to a strictly management side, others to the labor, while others want to leave the operation altogether. “Not being clear with that can cause problems down the road if the next generation is thinking retirement means ‘you’re out of business and I’m in charge’ and the older generation is still showing up and is involved in the decision-making all of the time,” says Truitt.

Hilding says growers who neglect to develop a succession plan risk the continuity of the farm. A key element of this plan is budgeting. The budget needs to separate living expenses from the business in order to indicate whether a farm can support an additional generation. “Most of the time, the senior generation has a tremendous amount of their assets tied up in the farming operation,” he says. “As a result, in order to implement a transfer to a successor generation, the transfer needs to occur in phases and in a manner that continues to support the outgoing and incoming generations. Sometimes the scale of the operation may need to change, or the successor generation has to bring something new to the operation in order for the income to be generated at the levels required. A next generation farmer may not have the management skills necessary to create credibility with the lenders (that the previous generation did). When (growers) have a lot of heirs, a proper succession plan is crucial. Without a good written plan, families with multiple children will be dividing assets up at the parents’ death and most state statutes divide it up equally versus equitably as may be required for the farm to survive.”

It’s A Team Effort
Ideally, everyone involved in the farming operation should be a part of the succession planning process says Swaim. Hilding notes that this helps as the family learns how people are going to interact and work together. “You may have one sibling that wants to stay on the farm, but how do you make it right and fair with the other siblings?” asks Truitt. “Sometimes, you assume there’s a chosen heir that’s going to stay on the farm. Sometimes, that might not be what the chosen heir wants. They may just like to be in labor; they don’t want the management piece of it. Often, there’s a perception that everything has to be divided up equally. That’s not a requirement of estate planning.”

It is important to involve lenders, accountants, attorneys, and all other key advisors of the farming operation in the succession planning as the process takes shape. “Nobody likes paying attorney fees or accounting fees, but that’s some of the best money these farms can spend,” says Truitt.
As important as it is to set up a succession plan, it’s as essential to review and carry out the plan to completion. “Sometimes, people don’t really understand what it is that they already have in place, if they have already done business or estate planning, and what it is that they’re supposed to do with it to facilitate the transition. Review of the plan is helpful with implementation and making sure the existing plan helps with the goals or if changes and modifications are required as situations change,” Hilding concludes.