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Nine challenges in farm succession planning (and how to approach them)

Callie Curley for Progressive Dairyman Published on 24 May 2018

“Not all families have family Christmas.”

This was how Ron Hanson, farm business succession consultant and professor emeritus at University of Nebraska, opened his sessions on overcoming family challenges in succession planning at the 2018 Pennsylvania Dairy Summit in February.

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“There are families that have become so overwhelmed with the troubles, the conflict, the jealousies that come about during farm succession planning, they can’t even enjoy being a family together,” Hanson said. “And that might be the saddest thing of all.”

Citing research conducted by AgriLegacy, a Midwest-based farm business succession consulting agency, Hanson said only 30 percent of all farms survive a transition from the first to second generations. Of those farms, 12 percent make it past a third generational transition. And a mere 4 percent of those farms will prosper under the care of a fourth generation and beyond.

“I don’t know about you, but I think those numbers could be better,” Hanson said. “Clearly, there’s a disconnect there on how to keep a dairy in the family. How do we make certain the family legacy continues, and the name on that mailbox outside never changes?”

The answer lies in some no-holds-barred conversations and planning long before the plan itself needs to be implemented.

“If you want to farm as an entire family, you have to start talking about all of the things no one really wants to talk about: How much land is there and what is it worth? How many cows? What equipment?” Hanson said. “Suddenly, everyone gets really quiet.”

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Here are nine questions and challenges Hanson identifies as “make it or break it” factors in a farm succession planning process, and how to approach them on your operation:

1. Who counts as family?

The lines families draw on who will have a seat at the table can be of great service or detriment to the success of their farm down the road, according to Hanson.

“You can push out the in-laws and only allow blood relatives to be involved in farm planning, but you’ll learn to regret it,” Hanson said. “What have you now done to the family circle?”

Excluding spouses from future planning can breed suspicion, doubt, and lack of trust and respect needed for the farm to run successfully. Hanson said it may be easy for families to think in-laws are secondary or non-relevant, but all of that could change in the blink of an eye.

“If Mom and Dad bring a son or daughter into the farm business, and that adult child is suddenly killed, who do their legal assets in the farm and property then pass on to? The spouse. Now mom and dad are in partnership with an in-law they had previously excluded. If they don’t know the plans, the ideas, the dreams, how can they be expected to work within that new relationship?”

While everyone may not have identical roles in the planning process or conversations, Hanson urged farm families to be as inclusive as possible to ensure all family members understand and respect the spirit of the plan and the future of the farm.

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2. Playing favorites

Though most parents would never admit it, Hanson is certain they all have a favorite child. This favoritism becomes increasingly relevant when assets and responsibilities are being shared among siblings.

“Jealousy – even among adult siblings – can destroy a family, not to mention any prospects of a successful business,” Hanson said.

In discussions with parents who are planning to pass the farm along to the next generation, Hanson encourages them to step back and evaluate all of their children’s intentions and actions for the good of the farm and the family rather than handing the reins over to a favorite who may not be the best leader or even the most invested in the farm’s interests.

3. Controlling versus mentoring

It may be difficult to make room for a younger generation and their new plans and ideas on a farm that worked just fine without them for so many years. Hanson said this dynamic – where parents maintain complete control and ownership of the farm and of its future – can do a disservice to the family and the operation.

“Here’s where you have to really, honestly evaluate yourself and your family,” Hanson said. “Is it the parents’ dream for their children to someday return to that family dairy farm? Or is it the children’s dream to someday work with Mom and Dad? Is it everyone’s dream as a family?”

Knowing what each individual wants from a succession plan can help make the process a smoother, more collaborative exchange of ideas and thoughts where everyone with a stake in the operation feels heard.

4. Willingness to share

Communication becomes particularly important with this challenge, Hanson said, as decisions must be made on which children will be given the opportunity to return home and share ownership as well as when that transition might take place. Will there be a certain amount of time the second generation needs to work on the farm before assets are transferred to them?

Will the parents retain full ownership until death? Sharing can be a challenge for both parents to their children and for siblings planning to work alongside their brothers or sisters in the process.

5. Selling points and prices

While many families create succession plans to avoid selling their farm, sometimes that isn’t in the cards. Hanson encourages the families he works with to lay out fair selling prices for the farm, what each individual’s portion of the assets and property are worth financially and identify any additional compensation or value for those who have been physically working the farm.

“Having conversations and clearly defined numbers or guidelines now will make for less awkwardness, less drama, less stress in the future if these actions do need to take place,” Hanson said.

6. Reluctance to communicate

“If ‘what if’ happened on your farm or to your family, does everyone understand what would happen tomorrow? Have Mom and Dad discussed this? Has it been put in writing? Or do you all assume everything will fall together?” Hanson asked.

By taking the time to communicate openly and honestly, families can eliminate the questions and stop potential problems before they even begin.

“When everyone feels heard and included, it’s much easier to make group decisions,” Hanson said.

7. Disagreements between parents

Hanson added, “All of these conversations are fine and good, but what if Mom and Dad aren’t on the same page with each other? What if Dad has different favorite children than Mom? What if each has a different strategy for ensuring ‘fairness’? What happens if they can’t work together? Nothing happens. No planning will be done.”

8. Greed and entitlement

In his years teaching at University of Nebraska, Hanson recalls walking into his classrooms, filled with undergraduate students, and simply saying: “Your parents don’t owe you a farm.”

He believes the greed and entitlement of younger generations expecting certain things from parents create divides in families that can be irreparable.

“When I have this conversation with my students, they don’t usually like it,” Hanson said. “So many young people leave home for school assuming they will have a farm to inherit from their parents, but that isn’t a given.

It’s important for young people to remember: It’s not their farm, it’s not their estate, it’s their parents’, and they need to respect the decisions their parents make for that estate until they are invested in it as well.”

9. Future vision

While this may seem an all-too-easy task to check off the list for those who are already planning a succession timeline for their farm, the challenge lies in the fine print, according to Hanson.

“It’s not enough to want a future for a farm business,” he said. “Everyone involved has to be in understanding and agreement of what that future looks like and how they plan to get there.”  end mark

Callie Curley is a communications student at Penn State University.

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